German auto maker Volkswagen has hinted for the first time that it is looking at developing a low-cost car but under a separate brand name.

"Volkswagen cars are associated with certain standards of safety; they are not meant to be used only for intra-city travel. So if we look at a low-cost car it would be with a new brand name rather than Volkswagen, Audi or Skoda," said Andreas Prinz, managing director of Volkswagen India's passenger car business.

Prinz was replying to a question on how the company would respond to the challenge from Tata Motors' [Get Quote] Nano, priced at Rs 1 lakh, currently on display at the Auto Expo in Delhi.

Volkswagen's possible entry would mark the first real competition to the Nano, which will be the world's cheapest car on the road when it is launched in September/October.

The German company's interest is also significant considering the fact that small-car makers like Suzuki and Hyundai have said they will not respond to the Nano challenge.

Bajaj Auto [Get Quote], which is developing a small car with Nissan-Renault later in the decade, has said it will not compete on price but cost of maintenance.

Several other companies like Ford, Honda, Toyota and General Motors are also considering small car launches, but none in the Nano category.

Meanwhile, Prinz said Volkswagen was considering a launch of "UP", the concept car that would compete with Hyundai's successful Santro small-car model. 

"It is a car that is suited for India and we might look at manufacturing it here, though a final decision has not been taken," said Prinz.

The company's current focus, however, is the launch of the new version of the Polo, for which Volkswagen is investing Rs 2,400 crore in a plant near Pune with a capacity to produce 110,000 cars in two shifts.

The Polo will be available by the end of 2009. The hatchback model will be positioned against the Maruti [Get Quote] Swift and the notchback will take on the Honda City.

Volkswagen is set to launch the legendary new Beetle in India. Company executives said it will import the diesel version of the car into India, which is likely to be priced at Rs 20 lakh.

"We received a lot of positive feedback depite the price of the car in India. We will bring it to India this year," said Prinz.