PARIS – A new small gasoline engine under development by PSA Peugeot Citroen marks a significant change in strategy for the auto maker, which is the recognized leader in European diesel engines.

The French auto maker plans to build 1.2 million 1.0L gasoline engines annually staring in 2013, more than 25% of its intended production of 4 million cars.

The new engine is expected to emit less than 100 g/km of carbon-dioxide, in PSA’s small cars such as the Peugeot 107 and Citroen C1. Because it will burn gasoline instead of diesel fuel, it will meet Euro 5 and Euro 6 emissions mandates at a considerably lower cost than diesels requiring particulate filters and oxides of nitrogen traps.

PSA says the engine will enable the auto maker, currently the leader in the low CO2-emitting vehicle segment, to maintain its competitive advantage. The aim is to offer vehicles with CO2 emissions below 100 g/km with no additional technology.

Up to now, PSA has emphasized the contribution to CO2 reduction made by its diesel engines, so the investment shift to gasoline is an important signal that it foresees a similar change in the market.

Aftertreatment for future diesel engines could double their cost disadvantage compared with gasoline engines – currently about €1,000 ($.1,548). Plus, the price of diesel in Europe is rising at service stations faster than gasoline prices due to high demand and limited refining capacity.

PSA apparently sees a reversal in demand for diesel engines, which have grabbed market share from gasoline engines over the last two decades and now account for 53.3% of the new-car market, according to the ACEA, the European automotive trade association.

Sales of diesel-powered light vehicles rose 5% to 7.8 million units in 2007, while deliveries of gasoline versions fell 4% to 6.9 million.

PSA’s decision to develope the new 3-cyl. gasoline mill on its own is significant. The auto maker’s current diesels were developed with Ford Motor Co. under PSA leadership, while its small gas mills were developed with BMW AG, under BMW leadership. Toyota Motor Corp. provides the 3-cyl. gasoline engines for the C1 and Peugeot 107.

It is not known whether PSA approached BMW about a joint development, but BMW is unlikely to have an interest in such a small engine. The 1.4L/1.6L mills the two auto makers developed together only have been offered in the Mini up to now, although BMW is expected to offer them in the 1-Series.

Automotive consultant Jean-Michel Prillieux, of Mavel SA in France, says PSA wants to rebuild its image as a leading engine developer. “It has been a champion of diesels, and it wants to be champion of a new generation of gasoline engines.”

The new gasoline engine will be turbocharged and produce 70 hp to 100 hp in different versions. The entry-level version will weigh no more than 132 lbs. (60 kg), some 55 lbs. (25 kg) less than PSA’s smallest engine today.

The weight reduction fits with the auto maker’s announced intention to reduce the mass of future vehicles, and the horsepower is intended to offer similar performance in PSA’s small cars while reducing fuel consumption.

Besides the C1 and 107 built in cooperation with Toyota at Kolin, Czech Republic, the new gas engine will be fitted to PSA’s Platform 1 cars that include the Peugeot 208 and Citroen C2 and C3.

It also may be used in the small light-commercial vehicles PSA builds with Fiat Automobiles SpA in Bursa, Turkey – the Citroen Nemo and Peugeot Bipper.

PSA will construct two assembly plants for the new gas engine. One will be in Tremery, France, where it manufactures its diesel and gasoline engines now.

Tremery, founded in 1979, builds the 2.0L/2.2L DW diesels and the 1.4L/1.6L EW gasoline mills. In 2007, the plant produced 1.74 million engines. The addition of 600,000 engines in 2011 will add 500 employees to the current 4,100 workforce.

The other plant will be located in Eastern Europe to be close to PSA’s Czech and Turkish factories, as well as its Platform 1 assembly facility in Slovakia.

PSA is considering four countries: Romania, Turkey, Ukraine and Poland. The auto maker says it will make a choice by the end of the year and open the plant in 2012. Each plant will involve an investment of €300 million ($450 million).

PSA’s choice of a major investment in France pleases French politicians and newspapers. A PSA spokesman says Tremery was chosen because it is a world-class plant with competitive costs.

Its engine lines are organized in the same way for each product. One side has machining lines for principal components such as cylinder heads, crankcase, piston rods and crankshafts. The engine assembly line is located on the opposite side. Between the two highly automated lines are the maintenance workshops.