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By Noah Barkin and Madeline Chambers
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 the two automakers' shared strategy of teaming up with partners for specific projects, rather than taking 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 much 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 about 115,000-120,000 new Minis per year.
LONG-TERM GAIN
"This is a positive step for both companies, although the benefits will start to show only in the long term as it will be several years before production starts," said Deutsche Bank auto analyst Lars Ziehn.
He said he expected PSA to sell a greater number of the engines and to invest more in the project, so BMW may proportionately have more to gain.
"BMW may save more in development costs and could also gain more from savings in purchasing with the additional clout obtained by having PSA as a partner," he said.
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 1435 GMT, BMW shares were up 0.44 percent at 36.16 euros, while PSA shares were down 1.9 percent. The Dow Jones European Auto Stoxx Index was down 1.25 percent.