Volkswagen is developing a new car for emerging markets. The new model will be either a small car or a sub-compact the size of the Logan.

Volkswagen will manufacture the car at a number of plants spread around the globe - including China, Russia and Brazil.

The Indian plant, being set up in the state of Maharashtra, will produce 110,000 units a year for the local market. Volkswagen is targeting sales of 700,000 for the new model in India over its product life.

Across the globe, VW is looking at annual sales of 1.1m units a year. Of this, up to 600,000 a year are expected to be built in Brazil. Russia is expected to account for 150,000 units per year.

In India, VW also is planning to launch the Passat this year. That model will be assembled from completely knocked down (CKD) kits and will sell in limited numbers, helping only to establish the Volkswagen brand in the country.

Next year, the Passat may be joined by the Golf, another model which will sell only in limited numbers in India. The real volume will come only from the emerging markets model under development.

Volkswagen is targeting cost reductions through global sourcing. When it goes into production in India, the new car will start with a 'localisation' level of 50%, increasing as production moves ahead.

"Our target is to increase localisation for the new model to up to 75% within two years of start of production," said VW India head of procurement Pierre Bruedgam.

Sourcing for the local VW models is not the only item on Brudegam's agenda. He has begun by consolidating Skoda India's sourcing with Volkswagen. Skoda is a well established niche brand in India, which assembles locally, though the Octavia (previous generation) and the Laura (present generation Octavia) plus the larger Superb have very little localisation.

However, this is something that Brudegam would like to change. Skoda's upcoming small car model - the Fabia - will start with greater localisation in any case.

Brudegam refused to comment on the target price of the new car for emerging markets. "The final specifications of the model are still being decided," he said.

Deepesh Rathore/Tilak Swarup