Reuters reports that Ford and Fiat are in ‘advanced talks’ to cooperate on developing a small car. The report cited as source ‘a person familiar with the matter’, and said that the news confirmed an earlier report.

German newspaper Handelsblatt cited sources close to the negotiations as saying the two were in talks, with one source quoted as saying: “The talks are already far along.”

Fiat and Ford declined to comment.

Fiat has long said it wants to work with other carmakers on specific projects to reduce risk and save on development costs, part of its plan to return to profit from 2002’s record loss.

Earlier this week, Chief Executive Sergio Marchionne said he hoped to sign a new industrial partnership by the end of the year.

Marchionne, who is keen to cut as many costs as he can to pull Fiat Auto back to profit in 2007, said the new partner would not be Asian and that the alliance would not include financial stake swaps, but he declined to specify further.

Reuters said that Ford of Europe is exploring options for a successor to its oldest and smallest model, the Ka, while Fiat, known for its small cars, plans to bring its Cinquecento model back to the market in 2007.

Earlier this week, the head of the Fiat brand Luca De Meo told Reuters that the Cinquecento would likely be built on the same platform as the Fiat Panda mini.