BMW, Toyota team up on eco-friendly cars

Toyota Motor and Germany's BMW are holding talks over forming a partnership to develop environmentally-friendly vehicles, The Japan Times reports.

The two firms hope to slash research and development costs for core technologies, as they believe their respective strengths and know-how complement each other.

In Europe, cars powered by diesel engines are popular in the 'green' vehicle market, as the engines are seen as an effective way to cut carbon dioxide emissions and get good mileage.

The Detroit News says a report by J.P. Morgan's Tokyo office said Toyota would obtain diesel engines from BMW, while providing BMW with hybrid technologies.

"We see this as positive for Toyota in that it could lower costs by boosting production of hybrid systems, enhance research and development efficiency and boost European sales by expanding Toyota's diesel-engine line-up," said J.P. Morgan analyst Kohei Takahashi.

The deal would capitalise on the two automakers' respective strengths and help Toyota reduce the negative impact on its earnings of unfavourable currency rates. Given the yen's steep rise against the euro and other currencies, "we estimate that Toyota is failing to generate a profit on nearly all models exported to Europe", Takahashi said.