Volkswagen is rushing to build a small two-seat vehicle that competes with the Smart ForTwo and the Toyota iQ in the European city-car market segment, AutoWeek reports. The unnamed two-seater will join the revised Polo and the production version of the Up concept as part of VW's new small car initiative.

The report said that VW is using a shortened version of the NSF platform from the Up to create the new car, and that the company will likely revive the Chico name last seen on a concept from back in 1991. "The Up boasts a tall design, and as a result, there are limits to its overall aerodynamic performance," said VW chairman Martin Winterkorn in the article. "Our newest car is a good deal lower, and because of this, it carries a lot less drag."

The company is planning the use of three engines: a 1.2-liter, gas-powered four cylinder with direct injection and the ability to run on just two cylinders, a 1.3-liter diesel (with a far-reaching goal of 117 mpg!), and a possible electric version powered by Toshiba batteries. No word yet on whether we'll see the new VW here.