German automaker Volkswagen announced it was cutting commercial ties with a Mexican distributor which displayed an old photograph of an iconic Beetle car alongside Nazi soldiers and swastikas.

The picture shows "a regime that emphasized hatred and discrimination" and was "completely alien to the corporate image" of the firm, Volkswagen said in a statement released on Monday.

The company, which has a major presence in Mexico, was alerted to the picture over the weekend by a social media user who visited the dealership in the Coyoacan district of the capital.

The Beetle was first developed by Ferdinand Porsche with support from Adolf Hitler, who in 1937 formed the state-run Volkswagenwerk, or "The People's Car Company."

Volkswagen, which used concentration camp internees and prisoners of war as slave labor in its factories during World War II, is among the Germany companies that have won plaudits for facing their Third Reich history.

The Latin American branch of the Simon Wiesenthal Center, which confronts anti-Semitism, praised Volkswagen on Tuesday "for having reacted quickly in memory of the victims of Nazi barbarism."