Toyota Motor Corp. and Isuzu Motors Ltd. are in talks over a possible tieup in the United States under which Isuzu would supply diesel engines for Toyota cars sold in North America, sources close to the talks said Monday.

If realized, it would be the first tieup between Toyota, Japan's leading automaker, and Isuzu, a midsize automaker under the aegis of General Motors Corp.

Toyota is considering procuring environmentally friendly diesel engines produced by DMAX Ltd., a Moraine, Ohio-based diesel engine producer affiliated with Isuzu, for its cars for the North American market, the sources said.

DMAX, which is owned 60 percent by Isuzu and 40 percent by GM, currently produces diesel engines exclusively for GM pickup trucks. The company, however, is planning to boost its production capacity from 100,000 units per year to some 300,000 units.

Although details have yet to be worked out, it is planning to start producing 4,000cc to 5,000cc diesel engines from around 2003 with an eye to supply them for Toyota's sports utility vehicles and small pickup trucks.

Isuzu, which already sealed an engine supply deal with Fiat SpA of Italy, hopes a deal with Toyota will further strengthen its engine business, a top official of the company said.

Toyota meanwhile believes the deal with Isuzu will enable efficient local procurement of the key auto part in the U.S., the sources said.

In Europe, where consumers are more environmentally aware, Toyota will start producing small cars with 1,400cc diesel engines starting in 2005 in a tieup with the Peugeot Citroen group.

Diesel engine cars are popular in Europe because they emit less carbon dioxide.

Toyota believes demand for diesel cars will increase in North America as the governments and consumers are expected to become more conscious about the environment.