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Volkswagen says may enter low-cost market with China-built car

By Andreas Cremer and Jan Schwartz

WOLFSBURG, Germany (Reuters) - Volkswagen may build its first low-cost car in China, a company executive said, as the German group ponders a move into no-frills vehicles to compete with Renault's Dacia and Nissan's <7201.T> Datsun.

More than 3 million so-called budget cars are sold in China every year, making it the biggest market in that segment, and VW would tap growing demand by teaming up with one of its two Chinese joint venture partners if the project is approved, VW brand development chief Ulrich Hackenberg told Reuters.

"That's an issue we're currently looking at," Hackenberg said in an interview at VW's Wolfsburg headquarters.

Europe's biggest car maker is looking at a price range of between 5,000 and 10,000 euros ($13,300) for the cars, which may include a van, estate and a small sedan, company sources said on October 12.

This may undercut VW's 9,850-euro Up! city car, the brand's smallest and cheapest model that is only sold in Europe and Japan. The two-door vehicle came to market in December 2011 and will be launched as VW's first electric-powered car at the Frankfurt auto show in September.

VW lacks a strong presence in markets such as India and Southeast Asia, with their growing small-car segments. A 2009 partnership with Suzuki Motor Corp <7269.T>, designed to benefit from the Japanese manufacturer's leading position in India, fell apart in 2011 in a public squabble.

VW Chief Executive Martin Winterkorn said at the Detroit auto show on January 13 that a decision on a budget car for emerging markets would be taken this year.

The German multi-brand group is working on hitting cost targets for the budget car and has not decided yet whether it would keep the VW badge or have a different brand.

"If one enters this segment for the first time, it's necessary to keep investments very low," Hackenberg said.

VW would use pre-existing mechanics from models that have gone out of production or are nearing the end of production, rather than develop new costly underpinnings for the brand from scratch, he added.

Hackenberg said it was unclear whether the group would bring a new budget car to Europe's embattled market because it could cannibalize its cheaper brands Seat and Skoda, and the firm was not yet sure if there would be demand for such a vehicle.

($1 = 0.7530 euros)

(Editing by Mark Potter)

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