Toyota and Subaru maker Fuji Heavy Industries are talking about developing a low-cost sports car targeting younger drivers, a Japanese newspaper reported on Friday.

The new sports car would likely be sold by Toyota using a horizontally opposed engine developed by Fuji Heavy, the Asahi said, according to the Associated Press (AP).

The car would have a relatively low price tag of under 2m yen ($US16,780) to attract younger drivers, Asahi said.

AP noted that Toyota acquired a 8.7% stake in Fuji Heavy in October 2005 [and it now shares its US plant to build the strong-selling Camry].

Both companies declined to comment to the news agency but spokesmen did say they were in talks on several possible collaborations.

Subaru announced yesterday it would launch its first diesel engine - the industry's first 'boxer' unit - at the Frankfurt motor show in September.