The combined group would reportedly be led by current VW CEO Martin Winterkorn and, under the new entity, Porsche would operate independently from the other brands in much the same way Audi and Bentley do at the moment.
The deal would see Volkswagen buy a 49 per cent stake in Porsche - though a price tag for the share has yet to be announced.
The Auto Union name was used by the consortium that controlled Audi, Horch, DKW and Wanderer prior to World War II. Eventually, the company evolved into modern-day Audi, which became a Volkswagen unit in 1964.
It is noted in the report that the parent company could again share this name after the sale is complete in 2011.