French car maker Peugeot confirmed that it is in talks with Toyota Motor but gave no further details.
"As a group we have a policy of being open to friendly contact with many potential partners and Toyota is one." said a company spokeswoman.
She added that joint production of a car was not necessarily being discussed as the topics could also focus on research, engines, or chassis development.
Earlier the Japanese newspaper Tokyo Shimbunreported the two groups were developing a project for the joint production of small cars, with the first car due to roll off the assembly lines in 2004.
The two companies already have links, because Peugeot sells diesel engines for the Corolla to Toyota.
Peugeot also has links with Ford, for diesel engines, Fiat for vans, Renault for engines and gearboxes, and Mitsubishi for petrol engine injection systems.