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Ford and Fiat To Develop Joint Small Car

FRANKFURT September 8, 2005; Reuters reported that Italy's Fiat and U.S. automaker Ford Motor Co are in advanced talks to cooperate on developing a small car, a person familiar with the matter told Reuters on Thursday, confirming an earlier report.

German newspaper Handelsblatt cited sources close to the negotiations as saying the two were in talks, with one source quoted as saying: "The talks are already far along."

Fiat and Ford declined to comment.

Fiat has long said it wants to work with other carmakers on specific projects to reduce risk and save on development costs, part of its plan to return to profit from 2002's record loss.

The 106-year-old carmaker argued it had not been able to strike competitive deals when it was tied up in a partnership with General Motors. That was dissolved in February.

On Tuesday, Chief Executive Sergio Marchionne said he hoped to sign a new industrial partnership by the end of the year.

Marchionne, who is keen to cut as many costs as he can to pull Fiat Auto back to profit in 2007, said the new partner would not be Asian and that the alliance would not include financial stake swaps, but he declined to specify further.

Fiat already has a joint venture with France's PSA Peugeot Citroen to make vans and together the two have a deal to make the vehicles in Turkey with carmaker Tofas.

Fiat has also co-developed an SUV with Suzuki, due out at the end of the year or in early 2006.

A Fiat deal with Ford on small cars could make sense. Small cars generate very thin margins so any money the companies can save on development costs would help pump back up the profits.

Ford of Europe is exploring options for a successor to its oldest and smallest model, the Ka, while Fiat, known for its small cars, plans to bring its much-loved Cinquecento model back to the market in 2007.

Earlier this week, the head of the Fiat brand Luca De Meo told Reuters that the Cinquecento would likely be built on the same platform as the Fiat Panda mini.

Sub-compact cars are still very popular in Europe and may gain more customers as fuel costs run to record highs. They also have the added advantage of letting automakers bring down fleet emissions of carbon dioxide.

"We would fully expect to continue to compete in that 'sub-B' part of the market," a Ford spokesman said, referring to the market segment where the tiniest cars sit.

Competition is fierce in the tiny segment and car companies are trying to cut costs as much as possible.

PSA and Japan's Toyota make small cars together in the Czech Republic, Volkswagen imports its Fox model from Brazil and General Motors sells South Korean-made Chevrolets to serve the small end of the market.

Some analysts had thought DaimlerChrysler's loss-making Smart unit might be a logical partner for Fiat, but DaimlerChrysler ruled out any industrial alliance on Wednesday.