PSA Peugeot Citroen and Toyota are close to signing a deal to jointly produce a small car for the European market. Although neither manufacturer has released details, it is believed the new platform will be for a compact sub-1.0-litre engine unit and that assembly at a European plant could start in 2003.

A memorandum of agreement is due to be signed in Brussels on July 12 after which Toyota president Fujio Cho and PSA chief executive officer Jean-Martin Folz are expected to outline plans.

A spokesman for Toyota said cars produced from the collaboration would offer both companies a three-fold advantage. “They will have prices lower than those in the current small-car segment, feature a high level of standard safety performance, and offer excellent environmental achievements,” he said.

The segment is Europe's fasted growing, with annual sales oft 1.5 million units, Toyota is known to be looking to increase its European market share from 3.5% to 5% within four years.

Both companies refused to be drawn on which plant or plants would be involved in the operation or whether a small diesel engine was to figure in the plans.