July 3 (Bloomberg) -- Volkswagen AG, Europe's largest carmaker, won't build a three-wheeled car, dubbed the GX3 and targeted at the U.S., because of concerns about future lawsuits resulting from the vehicle's design.

``With regret, we have concluded that the current and foreseen product liability issues at this time were just too great,'' Adrian Hallmark, Volkswagen's U.S. chief, said in an e- mailed response to questions.

Volkswagen, which hasn't turned a profit in the U.S. since 2002, intended to introduce the two-seat vehicle, which would have been equipped with two wheels in the front, weighed 1,300 pounds (590 kilograms) and had no roof, as early as next year.

Wolfgang Bernhard, head of the Volkswagen brand, had hoped the car would help boost sales in the U.S., which had fallen 37 percent between 2002 and 2005 before reviving this year. He touted the vehicle at the Los Angeles Motor Show in January ``as the first breath of fresh air'' for the Wolfsburg, Germany-based carmaker in the U.S., the world's largest car market.

``The idea of going around with three wheels is a quaint idea from yesteryear,'' said Stephen Pope, head of equity research at Cantor Fitzgerald in London with a ``buy'' recommendation on Volkswagen shares. ``It smacks a bit of stupidity to me. Nice concept, thank you very much, but keep it in the design studio.''

The GX3 was the first major product to come out of Volkswagen's Project Moonraker program, which sends German engineering, design and marketing employees in their 20s and early 30s to live in the U.S. to get a better idea of what American customers want.

`Overwhelming' Response

Hallmark said that, since showing the GX3 in Los Angeles, Volkswagen had received ``overwhelming'' customer responses in favor of the model and spent several months ``exhaustively evaluating'' limited production of the vehicle.

``It would not have been possible for us to build the GX3 with the purity that it required, at the price which prospective customers told us they would be willing to pay,'' Hallmark said. ``Rather than offering a product which deviated from such a basic, honest and original concept, Volkswagen has concluded that, regrettably, production will not be possible.''

Volkswagen had planned for the GX3, which could be operated with a motorcycle license, to fill a niche within the market for an affordable second car for use during nice weather. Sales of the vehicle would have focused on warm areas within the U.S., in particular California.

Smart's U.S. Debut

The carmaker's decision contrasts with an announcement June 28 by DaimlerChrysler AG, the world's fifth-biggest carmaker, to introduce the two-seat Smart mini-car in the U.S. in 2008. The Stuttgart, Germany-based company is betting a new market for the car, which fits on a pool table, will help end years of losses at the Smart brand. DaimlerChrysler is marketing the Smart for use in all weather to urban drivers on the U.S. east and west coasts.

The GX3 was designed to get 46 miles per gallon of gasoline (5.1 liters per 100 kilometers). The Smart gets 40 mpg.

Volkswagen posted a loss of 843 million euros ($1.08 billion) in the U.S. in 2005. Hallmark in January said the loss will be narrower this year as sales rise for new versions of the Passat and Jetta sedans and Volkswagen introduces the GTI sports hatchback, Rabbit compact car and Eos convertible.

The carmaker is also planning a compact sport-utility vehicle for the U.S. as well as a minivan, which it will build together with DaimlerChrysler's Chrysler division.

To contact the reporters on this story: Chad Thomas in Berlin at cthomas16@bloomberg.net.

Last Updated: July 3, 2006 09:05 EDT