Subaru maker Fuji Heavy Industries is in talks with Saab Automobile AB to jointly develop cars, a company source told Reuters on Monday.

Fuji Heavy, owned 20% by General Motors and Saab Automobile, fully owned by GM, aim to realise significant cost savings through joint development of compact cars, the source told Reuters. The two companies would also strengthen sales cooperation, with Subaru dealers in Japan selling Saab cars from as early as this year, the source added.

Subaru is also considering supplying vehicles to Saab in the United States on an OEM (original equipment manufacturer) basis, the source told Reuters.

An official spokesman for Fuji Heavy told Reuters nothing had been decided while GM officials were not available for comment, the news agency added.

Reuters noted that, on Saturday, business newspaper Nihon Keizai Shimbun said the two car makers would jointly develop and market a small sports car, targeting combined annual sales of more than 100,000 units, with a worldwide roll-out in 2005.

GM and its group firms have cooperated in the past on research and development and parts procurement, and are now seen aiming to take their cooperation a step further to joint development, production and marketing, the newspaper said, according to Reuters.

The paper also said that such moves are aimed at improving the GM group's competitiveness and boosting global market share, Reuters reported.