Volkswagen is planning a BMW 5-series fighter positioned above the next-generation Passat and below the Phaeton flagship, according to Automotive News Europe (ANE).

The weekly trade newspaper said the medium-luxury VW model internally referred to as the C1, would also compete with the Mercedes-Benz E class and Audi A6.

“We have seen definitive design proposals,” a VW source told ANE, adding: “You will get an impression of it when you see the next-generation Passat, which is due in 2004.”

A decision to go ahead with the C1 project has been made, a VW engineer told the paper.

“Three months ago, it was not so certain,” the engineer, who also did not want to be named, told ANE, and added: “But it has been set for 2006 in our planning, so you may assume it is definite now.”

Automotive News Europe said the production volume for the C1 has not been set yet, but 50,000 units a year should be the minimum goal. “Otherwise it would not make sense,” a VW source told ANE.

ANE said that the C1 would likely be the first car based on VW’s modular C platform which has been developed but never utilised.

Analysts told ANE there could be room for a premium VW model above the upper-medium Passat.

“Although the model is successful, the overall Passat segment is going nowhere in Europe,” Colin Couchman, senior analyst at Global Insight, told ANE, adding: “So a premium model would be a sensible addition for VW.”

Automotive News Europe said VW’s main target disagrees. Asked about volume producers’ moves into the luxury end, BMW CEO Helmut Panke reportedly said car companies’ success depends to a major extent on maintaining focus. If designers, for example, have to work on a volume car in the morning and a luxury car in the afternoon, the focus will be lost, he reportedly said at a press briefing last week.

ANE said that VW believes a medium-luxury car would have potential in Europe, the USA and perhaps China.

“But there is a risk of confusion within the VW group, where Audi already has its A6,” Couchman told the paper.

ANE noted that sales of both VW’s upmarket Passat W8 and the luxury Phaeton have been suffering so far. During the first six months of 2003, the Phaeton sold just 2,128 units and only 453 were sold in June.

ANE also noted that VW had planned to sell 10,000 units of the W8-engine Passat annually but actually achieved just over half that figure in 2002.

Couchman told Automotive News Europe: “Maybe such a premium model [the C1] may eventually succeed the Phaeton, which VW may let die slowly.”