PSA Peugeot Citroen and Toyota Motor Corporation hope to announce next week a deal to jointly design and manufacture a small car targeted at European buyers.
The two companies expect the joint venture to benefit from “economies of scale” which would be passed on to motorists through lower prices.
A Toyota spokesman said: “The cars will have prices lower than those in the current small-car segment. They will feature a high level of standard safety performance and offer environmental benefits.”
Although neither manufacturer would confirm details, it is believed that the platform would be for a compact, 1-litre engine car. Assembly at a European plant could start as early as 2003, with volumes reaching 300,000 a year.
Toyota, which established a stronghold in the US on the back of a joint production venture with General Motors, is now focusing on Europe. It plans to raise market share from 3.5% to 5% by 2005.
The small-car sector is one of Europe's fastest growing, with 1.5m sales a year.