The suggestion by Bernd Pischetsrieder that Bentley Motors will have some of its cars assembled at a Volkswagen factory in Germany is another reminder that car makers frequently don't know what they're doing.

The VW group, Europe's largest car maker, is cutting costs to remedy the effects of its spending binge of the late 1990s. The Bentley development is a legacy of that over-indulgence.

Having Bentleys made in Germany was not one of the many commitments made by VW to gain shareholder and public support during its takeover battle with BMW for control of Bentley and Rolls-Royce, which were put up for sale by Vickers in 1997.

VW triumphed with Bentley by promising a great deal more than BMW, which ended up with the rights to use the Rolls-Royce name on an all-new range of cars. VW paid £470m for Bentley, sealing the deal with a £120m commitment to buy Cosworth Engineering from Vickers as well.

That was only the start. VW then said it would invest an extra £500m in Bentley to launch new models and to increase annual output at its Crewe factory by six-fold to 9,000.

The decision to top up Bentley numbers by having cars finished at VW's fancy new factory at Dresden means Crewe's expansion is now history. It was probably unrealistic in the first place. The most cars the creaking old place managed in a single year was about 3,300. With two shifts, Crewe this year will produce about 5,000 Continental GTs and nearly 700 of the more expensive Arnage limousines.

In other words, Crewe has almost doubled in size already. As recently as this June, though, the company talked in terms of adding a third shift to produce the four-door version of the Continental from next year.

Bentley now insists that while Crewe will make the Continental four-door, any requirement for more models beyond its two-shift capacity will be met by Dresden. The decision is less of a rebuttal of Crewe, more an indictment of VW's vainglorious scheme to challenge BMW and Mercedes-Benz - and its own Audi division - with a luxury limousine of its own.

The VW Phaeton is the folly of Ferdinand Piech, who splashed out £1.7bn on various automotive baubles (including Bentley) during his latter years as chairman of VW; he retired in 2002.

In addition to that, the Phaeton project is believed to have cost VW more than £650m, including £130m on the showpiece factory at Dresden. Constructed of glass and steel, it features an assembly hall floor made of Canadian maple.

To the surprise of no one except Piech, Phaeton is a flop. Launched in 2002, VW expected annual sales to reach about 15,000 by next year. It will be lucky to do half that. However good the Phaeton is technically, no one who pays more than £50,000 for a limousine wants a VW badge on it. They want a Mercedes star or BMWpropeller.

So, with Piech's replacement, Bernd Pischetsrieder, determined to cut costs, Dresden needs a more respectable role within VW. Filling its empty production hall with Bentleys probably makes business sense.

The public relations fallout may be more of a problem. Does the buyer of a quintessentially English car mind if it is made in the former East Germany? Opinions are divided.

Big car groups such as BMW, Mercedes, Toyota and Honda opened car factories around the world in recent years without losing their national identifies. Precedents indicate it is different at the boutique end of the car market. When Rolls-Royce made cars in America in the 1920s, the venture was a failure.

BMW has no doubt that Rolls-Royces must be seen to be assembled in England, even if most of their content is German. When VW and Porsche got together to develop a sport-utility, the mass producer chose Slovakia to assemble its Touareg but the sports car specialist insisted on a German home for its Cayenne.

And would the world accept a Ferrari or Maserati made outside Italy, or an Aston Martin outside England? Dresden Bentleys may prove a hard sell.

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