Toyota Motor of Japan and PSA Peugeot Citroen of France announced Friday that they would develop and build together a small, fuel-efficient car for the European market.
The companies said in a statement that they expect to sign a formal agreement later this month and announce details then.
Japanese news reports said that if the deal went through, the companies intended to build 300,000 of the small cars a year, sharing a common platform or underbody.
The benefits for Toyota would be an expansion of its model lineup in Europe beyond the Yaris, a subcompact known in Japan as the Vitz. The Yaris competes in Europe with market leaders like the Volkswagen Golf. Toyota has manufactured the car at Valenciennes, in northern France, since January of this year.
For Peugeot, the advantages appear to lie in gaining a new small car below its Citroen Saxo and Peugeot 106 models, while sharing the development costs with Toyota.
Bertrand Bellanger, a Toyota spokesman in France, said the companies were studying sites for a joint factory, including locations in Eastern Europe and at the site of a new Toyota factory at Valenciennes.
Market share
But he also said that an Eastern-European country, possibly Poland, appeared to be the probable choice because of cost advantages like low wages and Poland's expected entry into the European Union, which has eliminated trade barriers.
Toyota will deploy the new small car, designed for predominantly city use, as part of its effort to widen its market share in Europe, which at 3.7 percent is less than half its share in the US. Though relatively strong in Britain and Germany, Toyota has lagged in other big markets like Italy and France.
To overcome that weakness, Toyota opened in January the US$570 million factory at Valenciennes where it manufactures the Yaris. Sales have been so strong that Toyota's president, Fujio Cho, announced in June this year that Toyota would raise production to 180,000 cars a year, from 150,000. From January to May, Toyota lifted its European market share to 3.7 percent, from 3.6 percent in the same period last year, even as the overall European market contracted by 3.3 percent.
For Peugeot, the deal is typical of the kind of industrial alliances that its executives have pursued over the years to cut costs and gain economies of scale while sitting out the round of mergers and acquisitions that swept the global automobile industry. Earlier this year, for instance, Peugeot's chairman, Jean-Mart Folz, announced a similar agreement with Ford to cooperate in developing and building diesel engines. That agreement followed older and tested alliances with Fiat of Italy and Renault, Peugeot's domestic rival, to develop and manufacture components and entire vehicles.
Marc Ferrant, a Peugeot spokesman, said the new model will be sold under Peugeot's two brands, Peugeot and Citroen.
Adam Collins, an analyst with Schroder Salomon Smith Barney, called the agreement "a helpful step to achieve greater economies of scale, without the irritations of being in a full-blown alliance."
Peugeot's strategy has yielded considerable success. In recent years, Peugeot has overtaken larger rivals, like Ford and General Motors, to capture the second-largest share of the European market, after Volkswagen.
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