Toyota Makes Diesel Deal with Isuzu, Report Says

Toyota Makes Diesel Deal with Isuzu, Report Says

Toyota said Friday it is in talks with Japanese partner truckmaker Isuzu on developing diesel engines, Japan’s business daily Nikkei reports.

Toyota would outsource diesel engine production to Isuzu, famous for its diesel technology. The 200,000-a-year diesel engines would go into Toyota small cars in Europe, the newspaper says.

Toyota owns 5.9 percent of Isuzu. Isuzu formed a capital alliance with Toyota in November after dissolving its tie-up with General Motors in April 2006. Isuzu still supplies diesel engines to GM for its large trucks.

The Toyota-Isuzu deal is yet another indication of increasing interest by Japanese automakers in diesels. Earlier this week, Nikkei reported Honda plans to sell diesel vehicles in the U.S. and Japan by 2009.

The report does not indicate whether Toyota will sell diesels in Japan or the U.S., something it has argued makes no economic sense in terms of emissions. Hybrids make more sense, and Toyota dominates hybrids globally, having hit the 1-million-hybrids-sold mark recently.

But Toyota’s hybrids suffered a setback this week when the automaker decided not to use lithium-ion batteries for its next-generation Prius, scheduled for a fall 2008 introduction. The technology apparently is not ready and Toyota fears quality problems.

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.