(Changes dateline to include Frankfurt, adds detail, shares)
PARIS/FRANKFURT, July 23 (Reuters) - French carmaker PSA Peugeot-Citroen and Germany's BMW AG said on Tuesday they planned to build a new family of small petrol engines together in a move aimed partly at saving costs.
The cooperation represents a step forward for a strategy shared by the two automakers to team up with partners for specific projects rather than to take equity stakes in other companies.
PSA said cars from its Peugeot and Citroen brands, as well as future models of BMW's popular Mini would be fitted with the engines. But a BMW spokesman said it was too early to say when production would start.
A spokesman for the German luxury carmaker said the initial costs for the whole project would amount to around 750 million euros ($744.8 million).
Annual production could reach one million engines, said PSA.
"The cooperation which calls for both expertise in automotive technologies and the ability to manage large-scale production, is expected to generate economies of scale and meet both partners' segment specific gasoline engine requirements," said PSA in a statement.
BMW declined to say how high the cost savings could be.
A joint team, under the responsibility of BMW and based in Munich, will develop the engines while PSA will oversee production and purchasing.
BMW declined to say what proportion of the engines it would use, but it expects to sell some 115-120,000 new Minis per year.
BMW has a separate agreement with Toyota Motor Corp under which the Japanese carmaker supplies 10,000-20,000 diesel engines per year for BMW Minis.
PSA also has an agreement with Toyota to build 300,000 small cars in the Czech Republic.
At 1345 GMT, BMW shares were up 1.39 percent at 36.50 euros while PSA shares were down 1.9 percent. The Dow Jones European Auto Stoxx Index was flat.