May 5, 2002 SEOUL (Reuters) - UPDATE 1-Daimler, Mitsubishi, Hyundai sign car engine deal

SEOUL/FRANKFURT, May 5 (Reuters) - Auto giant DaimlerChrysler AG signed a joint venture on Sunday to design and develop car engines with Japanese partner Mitsubishi Motors Corp and South Korea's Hyundai Motor Co.

The deal comes as DaimlerChrysler, the world's number five automaker, and its rivals seek to extend their global reach to cut costs and improve profitability.

"The three companies will hold equal stakes in the joint venture, to be called 'Global Engine Alliance', which is scheduled for launch in the United States in early May," Hyundai, South Korea's largest carmaker, said in a statement.

The venture will develop aluminium engines with capacities of 1.8, 2.0 and 2.4 litres, and Hyundai will lead the development and engineering, DaimlerChrysler said. The three companies will produce 1.5 million engines a year based on its work, making it the biggest joint engine development operation to date.

DaimlerChrysler, Mitsubishi and Hyundai have been in talks on the deal for months.

The passenger car engines will be used by both the Asian manufacturers and DaimlerChrysler's U.S. Chrysler unit, which last month inched back into the black after six consecutive quarters of losses.

"The Global Engine Alliance represents the fruit of Chrysler's cooperation with Mitsubishi and Hyundai," said Chrysler Chief Executive Dieter Zetsche. "A project like this one could be the starting point for closer cooperation."

It is the second tie-up between South Korean and U.S. automakers in a week following a deal on Tuesday by General Motors Corp to buy key parts of bankrupt Daewoo Motor Co, the nation's third-largest automaker in terms of sales.

DaimlerChrysler holds minority stakes in both Hyundai and Mitsubishi, where a veteran of the German-U.S. firm, Rolf Eckrodt, took over as chief executive last month.

Each of the three companies will produce its own engines, with Hyundai starting production in 2004 and Chrysler and Mitsubishi starting in 2005. Daimler also formed a diesel engine joint venture last year with Hyundai.

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