Chrysler reportedly is talking with Nissan Motor about expanding their cooperation to jointly producing mid-size cars.

Noting that the two automakers agreed earlier this year to work together on pickup trucks and subcompact cars, the Wall Street Journal (WSJ), citing  "people familiar with the matter" reported on Thursday that they have since been discussing a deal for Nissan to produce mid-size cars that Chrysler would sell in the US under its own brands.

A Chrysler spokesman told the paper the company has "no new alliances" to announce, and declined to comment on any discussions it might be having.

The WSJ said such a deal would signal a dramatic change in the way Chrysler operates in its passenger car business, effectively outsourcing their development, engineering and production, though it would continue to develop new trucks, SUVs and minivans itself, in-house.

Chrysler and Nissan Motor last April followed up their January announcement of supply of a new car based on Nissan's Versa sedan for Chrysler to sell in South America from 2009 with the unveiling of a further deal that will see Nissan make a new small car in Japan for Chrysler while the Detroit automaker returns the favour with a full-size Mexico-made pickup.

The "fuel-efficient" new segment small car for Chrysler will be sold in North America, Europe and other global markets in 2010, and manufactured at Nissan's Oppama plant in Japan.

Chrysler already builds a version of its smaller Dakota truck for Mitsubishi to sell in North America as the Raider and also makes a top-specification version of its Town and Country minivan for Volkswagen to sell in the US.

The WSJ said a deal with Nissan on midsize sedans would put Chrysler on a path to becoming a marketer and seller of cars made by others - as well as the announced and reported Nissan deals, it also has an agreement under which China's Chery Automobile will make small cars for it.

The paper noted such outsourcing has worked for computer makers such as Dell, which relies on key suppliers to develop major components, does only limited engineering itself and has contract manufacturers to assemble some models.

The Wall Street Journal suggested outsourcing the engineering and development of cars could save Chrysler and majority shareholder Cerberus Capital Management the billions of dollars it costs to develop a full line of vehicles in-house, possibly bringing the company back to profitability, even though its vehicle sales are declining.

A person familiar with the company's strategy told the WSJ Chrysler is focusing its engineering resources on parts of the market where it is a strong player - trucks, SUVs and minivans: "We're still in engineering," the person said. Working with partners on other models saves money and allows the company to add models that would be costly to produce by itself, the source added.

Chrysler's current mid-size models are the Chrysler Sebring and Dodge Avenger whose sales are largely flat year to date vs 2007 in the US, though the Sebring dropped about 36% last month.

These are also exported but have been criticised by UK consumer reviewers for poor interior quality.