TROLLHATTAN, Sweden -- Saab and BMW AG signed an agreement today for BMW to supply engines for Saab's next-generation 9-3.
Under the agreement, BMW will supply Saab with a four-cylinder 1.6-liter turbocharged gasoline engine starting in 2012.
The engine is currently used in the Mini. It will be adapted to meet Saab's specific requirements and is expected to produce 200 horsepower.
Making the announcement at Saab's headquarters, Saab Chairman Victor Muller said the agreement “improves our business plan and shows we are in charge of our destiny. This will raise the profile and the premiumness of the Saab brand.”
The engine supply contract was signed here by Muller, Saab CEO Jan Ake Jonsson and BMW board member for sales and marketing Ian Robertson.
The engine will be assembled in BMW's Hams Hall plant in England. A feasibility study is being conducted for an E85 version.
The contract's length and engine volume were not announced but Jonsson said this “is a long-term contract for hundreds of thousands of engines.”
He added: "BMW's engines and their fuel savings innovations are widely regarded as a benchmark in the premium segment."
Asked why Saab isn't developing its own engine, Jonsson said “it is too expensive to develop your own engine.” Saab currently purchases engines from General Motors Co. and Fiat.
Robertson said BMW will continue to seek buyers for its engines, a strategy started in 2007.
It has an agreement to supply a six-cylinder diesel engine to Carbon Motors in the United States. Engine deliveries will begin later this decade and will be used exclusively in a purpose-built car Carbon Motors wants to sell to law enforcement agencies.
Robertson said that BMW is exploring other opportunities with Saab, “but it is too early to say anything.”
"The Saab 9-3 model was built on an Opel Astra, which was quite a downgrade. A deal with BMW would help the brand," Keijser Capital trader Peter Jurgens said earlier this week when reports surfaced of an imminent engine deal.
Jonsson told Reuters he still expects Saab to sell about 45,000 cars this year and about 80,000 units in 2011.
Reuters contributed to this report