Volkswagen has been criticised in recent years for launching increasingly expensive models – such as the Phaeton and Touareg – which have taken the German brand away from being the ‘People’s Car’.

Fox is the manufacturer’s answer to the critics.

The Brazilian-built three-door hatch goes on sale in the UK from January 2006 and will replace the Lupo. But unlike the Lupo, Fox will be priced to compete with rivals like the Ford Ka, Toyota Aygo and Fiat Panda. Although prices won’t be confirmed by Volkswagen UK for many months, the car is now on sale in Germany from Euros 8,950, which brings it close to £6,300.

Volkswagen will keep the Fox range simple, so it will be offered with 1.2-litre (55bhp) and 1.4-litre (75ps) petrol engines and a 1.4-litre TDI diesel (75bhp) only.

The 1.2 is expected to account for at least half of the annual 8,000 sales (Lupo sold 2,529 units in 2004). It’s a zesty three-cylinder that’s already seen service in the Seat Ibiza, Škoda Fabia and VW’s own Polo. It offers more than enough power for driving around town and it can hold its own on the motorway. It achieves 46mpg on the combined cycle, while the 1.4 petrol delivers 42mpg.

The 1.4 TDI manages 58mpg.

Fox was intended originally for the South American market and – despite a thorough re-working for European tastes – cabin quality isn’t up to VW’s usual high standards.

The switches and buttons are common to Lupo and Polo, but the overall interior finish, and the quality of the plastics, isn’t the same as a car built in one of VW’s European plants.

However, it is exceptionally roomy and has a sliding rear seat – when that’s slid back, there’s the legroom of a MK IV Golf; slide it forward to get that car’s bootspace.

Some interesting touches wouldn’t have appeared if the car had been designed in Wolfsburg: the interior headlining is made from pineapple fibre and the dash plastics have the pattern of the leaf of a South American plant.

A Cross Fox 4x4 could come the UK later, but the five-door and saloon models – on sale throughout Latin America – have been ruled out.

Strengths: VW badge; looks good
Weaknesses: Not like a VW on the inside
Opportunity: Break into the cheap city car market
Threats: Citroën C1, Peugeot 107, Toyota Aygo
USP: Volkswagen quality with added value
Prices: £6,500-£8,500 (est)
Engines: Petrol: 1198cc 55bhp, 3cyl 8v; 1390cc 75bhp, 4cyl 16v. Diesel: 1422cc 75bhp, 3cyl 8v
Transmission: 5spd manual, fwd
Performance: 17.5 sec 0-62mph, 92mph top speed; 13.0 sec 0-62mph, 104mph top speed; 14.7 sec 0-62mph; 100mph topspeed
Efficiency: 46mpg, 145g/km CO2; 42mpg, 161g/km CO2; 58mpg, 132 g/km CO2
CAP RV: TBA
Rivals: C1, Aygo, 107, Panda