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According to AutoCar, Volkswagen is speeding up the development of an affordable two-seat city car that will go head-to-head with the new Toyota iQ and the Smart ForTwo. Insiders say that the new city car will be named after a concept car from 1991 called the Chico and will become the entry-level V-dub - below the upcoming Volkswagen Up!

The new two-seat Volkswagen Chico will be built on a modified version of the Up! chassis and is expected to return an outstanding 141 mpg and emit less than 60g/km of CO2 without the use of a hybrid system.

Power will come from a new 1.2L 4-cylinder direct-injection engine. Volkswagen will also offer a 1.2L 3-cylinder diesel option. Fuel-saving technologies such as regenerative braking, start/stop and low rolling resistance tires will be standard features.

AutoCar says the car could cost as little as £6000 ($9,173 USD) when it goes on sale in the UK in 2011.

Source: AutoCar