updated 2/23/2006 10:07:03 AM ET 2006-02-23T15:07:03

A symbolically key partnership between Toyota and General Motors is ending next month just as the leading Japanese manufacturer threatens to overtake its U.S. rival as the world’s top automaker.

Toyota Motor Corp. and General Motors Corp. inked a five-year deal in 1999 to work together in technology, and that was extended for two years April 1, 2004. Another extension is dubious when the agreement expires end of March.

GM and Toyota officials — including former Toyota president Fujio Cho and GM’s head of research, Larry Burns — have said since last year that both sides are talking about possible collaboration in technology.

Such technology includes pollution-free hydrogen fuel cells and hybrids, which run on both a gasoline engine and electric motor to deliver better mileage than comparable regular models.

But beyond a lot of talking — and the initial handshake — the deal has produced little else.

“We are continuing our discussions,” Toyota spokesman Paul Nolasco said Thursday, declining to comment on speculation the deal may be ditched soon.

Still, the partnership is significant as a sign of friendly relations amid intense global competition. Toyota may also want to maintain that positive image to help avert any possible backlash from U.S. consumers and politicians.

If Toyota keeps up its current pace of growth, it could well surpass GM as the world’s No. 1 automaker in the next few years.

GM sold 9.17 million vehicles worldwide in 2005, the most it has sold in 27 years. Late last year, Toyota announced a global production target of 9.06 million vehicles for 2006, which includes output from group manufacturers.

Tsuyoshi Mochimaru, auto analyst with Deutsche Securities in Tokyo, believes it’s better if GM and Toyota can maintain the alliance even as a symbol of good relations between two powerful companies.

“There’s no point in terminating it,” he said. “Technological alliances like this generally don’t produce visible results that quickly.”

But General Motors has already picked other automakers for a hybrid alliance.

Last year, GM agreed with DaimlerChrysler AG of Germany to develop hybrid engines together, and Munich, Germany-based BMW Group later joined that agreement.

Toyota has been gaining market share in the United States, partly on the success of its hybrids such as the Prius model, while Detroit-based GM is facing deep financial trouble.

Their contrasting fortunes have some Japanese, including Toyota Chairman Hiroshi Okuda, worrying about intensifying trade friction.

GM, which lost $8.6 billion last year, has announced a revival plan to cut 30,000 jobs and close 12 plants by 2008. Earlier this month, it outlined a plan to cut white-collar pension and health-care expenses, slash its dividend and trim executive salaries as part of its latest bid to avoid bankruptcy.

Toyota profits, meanwhile, are booming. The automaker based in the central Japanese city of Toyota chalked up a 397.6 billion yen ($3.35 billion) profit during the October-December quarter, its best ever.

Under a separate partnership, General Motors and Toyota run an auto plant together in Fremont, Calif., called New United Motor Manufacturing Inc., or NUMMI, set up in 1984.

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