Despite company denials, sources say VW is busy developing new cars for the low cost segment.
By the end of the year, the VW board will be presented with concepts for a car that will rival the Logan.
Renault is marketing the Logan in western Europe priced from 7,500 euros and priced from 5,000 euros in developing countries.
VW could launch its own low-cost car for less than 8,000 euros from 2008. The model would be built in China or Brazil and exported to both western and developing countries.
The new model would be cheaper than the Brazilian-built Fox, which VW will introduce in Europe next year priced around 10,000 euros.
VW's recruitment of ex-DaimlerChrysler executive Bernhard signals a major shake-up in the group. Bernhard will join VW's board on Feb. 1.
Group boss Bernd Pischetsrieder recently told a handpicked group of managers of the changes at a top management meeting in Warsaw.
A participant said that board member Hans Dieter Poetsch described VW's financial position as "worryingly grim."
Bernhard will take over the VW brand to leave Pischetrieder free to concentrate on steering the VW group back on course.
It's not just the members of the VW works council that are worried about the appointment of Bernhard, who has a reputation of being a "cost killer."
Some of VW's top managers may have to fear for their jobs.
Strategy director Jens Neumann is said to be at the very top of Pischetsrieder's hit list.