Toyota Motor Corp. and its Japanese partner truck maker, Isuzu Motors Ltd., will develop and produce small diesel engines together for the European market, both sides said Thursday.
The agreement, which concludes talks that began last November, will allow Toyota, Japan's top automaker, to take advantage of Isuzu's highly reputed diesel engine technology.
Production of the 1.6 liter diesel engines for use in Toyota vehicles sold in Europe will start in 2012, the companies said in a statement.
Demand for diesel vehicles is rising especially in Europe because of worries about global warming. Diesel is widely known for good mileage, and recent innovations have made diesel cleaner.
Toyota already produces diesel engines in Europe, but it has tended to focus more on so-called hybrid technology, in which a car switches between a gas engine and an electric motor for fuel efficiency.
The agreement allows Toyota to get help from Isuzu to compete in diesel technology with rivals, including Honda Motor Co., which is strengthening its own lineup with "super-clean" diesel engines.