Volkswagen's chief of research and development, Dr Heinz-Jakob Neusser, has confirmed that the VW Group is still working on the launch of a budget brand to rival Dacia – but admitted it is yet to find a solution that will allow it to prepare for launch.

The mooted Volkswagen Group budget brand had previously been reported to have hit repeated problems as a result of the company’s own internal standards for manufacturing.

Speaking at the Geneva motor show, Neusser said, "We are still working on the issue of the brand, but we haven't made a decision on it yet. We know we are not prepared to launch cars that don't meet our maximum quality aspirations, and we know we face a challenge.

"But now is not the time to say more than this. We will work on a solution and then talk about it if we find it."

Insiders report that the company is struggling to hit budget targets for the proposed cars while still maintaining what senior management has deemed “necessary” quality and safety levels. As a result, there is currently no business case for making the vehicles.

However, the project is reported to be “still under consideration” as opposed to being put on hold or cancelled. Insiders say that VW’s technicians have been impressed by how rival brands – including partner Suzuki, with which it is at loggerheads – have managed to create high-quality budget cars without pushing costs up.

The low-cost brand is being investigated by VW because it would give the group a direct rival to Dacia and allow VW to further penetrate lucrative markets in China, India and across Asia and Latin America, as well as enhancing its offerings in Eastern Europe, the Baltic region and Africa.