Volkswagen AG could launch the Up! mini-car in the United States, the German automaker's U.S. Chief Executive Stefan Jacoby said on Wednesday.

Up! could be in the future of the market here, Jacoby said at the New York Auto Show. In urban areas like New York, a car like Up! has a good chance.

Volkswagen expects to introduce the car as a 2012 model, but is still deciding where to build it and in which countries to sell it.

The Up! was first seen as a two-door hatchback concept vehicle at the 2007 Frankfurt Auto Show and is expected to have a fuel-efficiency of more than 50 miles per gallon.

Volkswagen continues to invest in technology and alternative-fuel vehicles to improve fuel-efficiency despite the steep plunge in global auto demand, Jacoby said.

We are looking at second-generation biofuels, electric cars, hydrogen fuel cell vehicles and nanotechnology, Jacoby said. But just as we have to be realistic about economic conditions, we have to be realistic about the prospects for alternative fuels.

The conventional combustion engine will continue to dominate the auto industry in the near future, Jacoby said.

Jacoby said he didn't see any recovery in the U.S. market until late 2009.

In the mid-term, I see a total market of 13 million to 14 million (vehicles), he added.

U.S. auto sales tumbled nearly 40 percent in the first three months of 2009 to the lowest level in 27 years, driving GM and Chrysler to the brink of bankruptcy and other major automakers into mounting losses.

The overall U.S. vehicle sales rate is hovering around 10 million units so far this year.

In a speech at the New York Auto Show, Jacoby said he would favor a U.S. government incentive program that would encourage consumers to replace older vehicles with new fuel-efficient ones.

Such incentives could be modeled after the successful German scrapping program that provides vouchers for the purchase of new cars, he said.

(Editing by Lisa Von Ahn)

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