(Updates with new Peugeot engine plan in sixth paragraph.)
Sept. 4 (Bloomberg) -- Bayerische Motoren Werke AG and PSA Peugeot Citroen will probably end cooperation on small gasoline engines when the project agreement lapses in 2016, a person familiar with the matter said.
BMW, the world’s biggest maker of luxury cars, no longer needs the partnership because the Munich-based company is developing its own engines, while Peugeot is tightening ties with General Motors Co. in a broader alliance, said the person, who asked not to be named as the talks aren’t public.
The program’s expiration would bring to an end joint work that started in 2002, when BMW and Paris-based Peugeot, Europe’s second-biggest carmaker, agreed to develop and produce as many as 1 million small gasoline engines. They added plans later to make components for hybrid electric-gasoline systems. The hybrid portion unraveled last year after Peugeot and GM started setting up their partnership in early 2012.
The jointly produced engines are used in BMW’s Mini small cars, Peugeot’s mid-range vehicles and the Citroen brand’s DS4 and DS5 models. The German company is developing its own architecture for three-, four- and six-cylinder gasoline and diesel engines. BMW Chief Executive Officer Norbert Reithofer was cited in July by German financial daily Boersen-Zeitung as saying the powering systems will also be deployed in the Mini.
Representatives for BMW and Peugeot declined to comment beyond reiterating previous statements that the combustion- engine program will continue until 2016. French business newspaper Les Echos reported earlier today that the carmakers intend to end the partnership.
Peugeot plans to introduce lower-emission diesel engines, dubbed DV-R, over two years starting in 2017, replacing 1.4- and 1.6-liter models now used in all the French carmaker’s vehicle lines, the company said today in a statement.
Investment in the project’s first phase will total almost 60 million euros ($79 million), with the motors to be built at a plant in Douvrin, France, Peugeot said. A second production line will be set up in Tremery, France, in 2018. Annual capacity at each site will amount to 640,000 engines.
BMW fell as much as 1.5 percent and was trading down 1.1 percent at 71.42 euros as of 12:43 p.m. in Frankfurt. Peugeot declined as much as 2.5 percent in Paris and was down 1.5 percent at 10.49 euros, the lowest since Aug. 8, based on closing prices.
Peugeot’s alliance with Detroit-based GM includes a joint venture for parts procurement in Europe and the development and production of cars that the manufacturers plan to begin selling in 2016. The U.S. carmaker now owns 7 percent of its French counterpart under the partnership.
--Editors: Tom Lavell, Tim Farrand