Toyota may supply Fuji Heavy Industries with small cars for the Subaru car maker to sell in Europe, according to the Yomiuri newspaper.

Toyota, which is Fuji Heavy's largest shareholder, is looking at providing cars based on its Yaris model and on another model sold only in Europe [likely to be the Czech-built Aygo] under an original equipment manufacturing deal from as early as 2008, the paper said, according to Reuters.

The news agency said the move would help Fuji Heavy, which lacks a strong small car model in a market where cars must meet new tighter emission standards. It would also help Toyota cut costs by boosting volume sales.

Fuji has previously sold a rebadged Hungarian-built Suzuki Swift small car line as the Subaru Justy in Europe. Before that, it sold a Japanese-built model of the same name. Both were available with two-and four-wheel drive, the latter is a Subaru hallmark.

Reuters said Fuji Heavy, in which Toyota took an 8.7% stake from General Motors last year, is aiming to redefine itself as a premium car maker with upmarket models such as the B9 Tribeca SUV but has failed to achieve sufficient sales.

British consumer reviewers have given the Tribeca, newly-launched here, a lukewarm reception.

Now allied with Toyota, Fuji Heavy hopes to beat high production costs and inefficiencies to jump-start a delayed recovery, the Reuters report added.

As part of their co-operation, Toyota and Fuji Heavy announced a deal last March to build the popular Toyota Camry sedan at an underused Subaru plant in the United States, while Fuji would develop petrol-electric vehicles using Toyota's hybrid technology, the news agency said.