diff --git a/dvc/command/remote.py b/dvc/command/remote.py
index 8c6dbc3ef3..683c040f42 100644
--- a/dvc/command/remote.py
+++ b/dvc/command/remote.py
@@ -19,6 +19,10 @@ def __init__(self, args):
 
 class CmdRemoteAdd(CmdRemoteConfig):
     def run(self):
+        if self.args.default:
+            logger.info(
+                "Setting '{}' as a default remote.".format(self.args.name)
+            )
         self.remote_config.add(
             self.args.name,
             self.args.url,
diff --git a/dvc/external_repo.py b/dvc/external_repo.py
index 8f53da4ef8..758d8f4215 100644
--- a/dvc/external_repo.py
+++ b/dvc/external_repo.py
@@ -7,8 +7,9 @@
 
 from funcy import retry
 
-from dvc.config import NoRemoteError
+from dvc.config import NoRemoteError, ConfigError
 from dvc.exceptions import NoRemoteInExternalRepoError
+from dvc.remote import RemoteConfig
 from dvc.exceptions import NoOutputInExternalRepoError
 from dvc.exceptions import OutputNotFoundError
 from dvc.utils.fs import remove
@@ -69,6 +70,22 @@ def _external_repo(url=None, rev=None, cache_dir=None):
 
     repo = Repo(new_path)
     try:
+        # check if the URL is local and no default remote is present
+        # add default remote pointing to the original repo's cache location
+        if os.path.isdir(url):
+            rconfig = RemoteConfig(repo.config)
+            if not _default_remote_set(rconfig):
+                original_repo = Repo(url)
+                try:
+                    rconfig.add(
+                        "auto-generated-upstream",
+                        original_repo.cache.local.cache_dir,
+                        default=True,
+                        level=Config.LEVEL_LOCAL,
+                    )
+                finally:
+                    original_repo.close()
+
         if cache_dir is not None:
             cache_config = CacheConfig(repo.config)
             cache_config.set_dir(cache_dir, level=Config.LEVEL_LOCAL)
@@ -113,3 +130,19 @@ def _clone_repo(url, path):
 
     git = Git.clone(url, path)
     git.close()
+
+
+def _default_remote_set(rconfig):
+    """
+    Checks if default remote config is present.
+    Args:
+        rconfig: a remote config
+
+    Returns:
+        True if the default remote config is set, else False
+    """
+    try:
+        rconfig.get_default()
+        return True
+    except ConfigError:
+        return False
diff --git a/dvc/remote/config.py b/dvc/remote/config.py
index dccad52ba3..bbda7fc445 100644
--- a/dvc/remote/config.py
+++ b/dvc/remote/config.py
@@ -105,7 +105,6 @@ def add(self, name, url, default=False, force=False, level=None):
             level=level,
         )
         if default:
-            logger.info("Setting '{}' as a default remote.".format(name))
             self.config.set(
                 Config.SECTION_CORE,
                 Config.SECTION_CORE_REMOTE,
diff --git a/tests/conftest.py b/tests/conftest.py
index 46b059d5ef..3eca524c07 100644
--- a/tests/conftest.py
+++ b/tests/conftest.py
@@ -7,7 +7,6 @@
 from git import Repo
 from git.exc import GitCommandNotFound
 
-from dvc.remote.config import RemoteConfig
 from dvc.remote.ssh.connection import SSHConnection
 from dvc.repo import Repo as DvcRepo
 from dvc.utils.compat import cast_bytes_py2
@@ -148,11 +147,6 @@ def erepo(repo_dir):
         repo.dvc.scm.add([stage_foo.path, stage_bar.path, stage_data_dir.path])
         repo.dvc.scm.commit("init repo")
 
-        rconfig = RemoteConfig(repo.dvc.config)
-        rconfig.add("upstream", repo.dvc.cache.local.cache_dir, default=True)
-        repo.dvc.scm.add([repo.dvc.config.config_file])
-        repo.dvc.scm.commit("add remote")
-
         repo.create("version", "master")
         repo.dvc.add("version")
         repo.dvc.scm.add([".gitignore", "version.dvc"])