Small cars are big business for manufacturers and they are fighting tooth and nail to keep market share in a competitive segment.

Last year, UK buyers snapped up 140,823 city cars such as the Peugeot 107, Toyota Aygo, Citroen C1 and Ford Ka.

With competition like this, Volkswagen needed to think big when it was preparing to launch its new city car.

And although the result has the rather cuddly title Fox, instead of the more aggressive Lupo (Latin for wolf) it replaces, it is still ready to take the fight to the rival pack.

On sale since last month, the Fox is one of the cheapest entry-level city cars on the market, priced from £6,590. The small price buys customers a bigger car than Lupo – so big, in fact, that it risks crashing the segment above.

Overall length is up 301mm to 3,828mm compared to the Lupo; width is up 21mm to 1,660mm; height rises 85mm to 1,544mm; and wheelbase is up 144mm to 2,465mm.

By comparison, the current Polo three-door may be slightly longer, at 3,916mm, but it is 10mm thinner and lower by nearly 100mm.

The Fox is built on the old Polo platform, which goes some way to explaining how it can be so competitively priced in a market where profits are hard to come by.

The price undercuts the equivalent Lupo by more than £1,000, although this is also because production is in Brazil, whereas Lupo was assembled in Germany. VW has also made full use of the company parts bin to keep costs down.

#AM_ART_SPLIT# So what do buyers get for their money? Options are limited: three-door only, two petrol engines and two specification levels – Standard and Urban.

The entry-level engine is a 1.2-litre 54bhp three-cylinder unit, which achieves 46.3mpg, but takes an ageing 17.5 secs to reach 62mph. Still, it meets group one insurance.

The 1.4-litre four-cylinder unit, which falls into group two and costs £7,395, offers a more respectable 74bhp and hits 62mph in 13 secs, while achieving 41.5mpg.

All models feature anti-lock brakes, driver and front passenger airbags, height adjustable seat belts, immobiliser, height and reach adjustable steering wheel, radio/CD.

Dealers can sell from a large options list, including ESP at an affordable £445, less than a set of alloys at £565 or semi-automatic air-con at £945.

This is wrapped in a tall body with arches that sit high over the wheels. Despite initial explanations that this was because the suspension came from the jacked-up VW Dune, officially it is because the car uses long travel suspension to aid ride comfort.

The interior provides clear signs of where costs have been shaved with hard plastics making up most of the dashboard. But there are quality touches, such as the instrument panel, with a speedo in a dominant central position.

While a spokesman admits the Fox might cannibalize Polo sales, he insists that it was a worthy addition to the manufacturer’s line-up.

Sales are expected to reach 9,000 units, three times what the Lupo sold.

Strengths: Large size, price, ride comfort
Weakness: Limited line up, cheap interior plastics
Opportunity: Take a greater slice of growing city car sector
Threat: It’s a sector that is becoming very crowded
USP: A Volkswagen that undercuts rivals on price
Prices: £6,590-£7,995
Engines: 1.2litre 54bhp 1.4litre 74bhp
Transmission: five-speed manual
Performance: 0-62mph: 17.5-13sec; top speed 92-104mph
Efficiency: 46.3-41.5mpg; 146-163g/km CO2
Rivals: Peugeot 107, Citroen C1, Toyota Aygo, Ford Ka