The cars to be produced by PSA Peugeot Citroen and Toyota Motor Corp in their planned European joint venture will be cheaper that the cheapest model currently sold under their brands in European, Peugeot chief executive Jean-Martin Folz said.

Speaking at a news conference on the venture, Folz said the projects aim to produce entry level small cars, priced below the current entry level vehicles of the Peugeot 106, Citroen Saxo or Toyota Yaris.

This will bring in a fresh type of new car buyer, who might otherwise have gone, for example, for second hand cars or new cars of old design, he said.

Folz said the cars to be produced by the venture fully meet internal profitability objectives.

"We are strongly convinced the project is profitable."

Even under the most pessimistic assumptions it "fully meets" internal profitability objectives for Peugeot Citroen and, he believes, for Toyota, he said.

He noted both groups have positive operating results and "we are not accustomed to committing ourselves to projects that are not profitable."

Folz declined to say when profitability would be reached, saying that will depend on market conditions and on the launch price, after production starts in 2005.

He denied safety is in any way compromised by the low price the two groups are aiming for.

Toyota president Fujio Cho said the two groups "have no plan to sacrifice safety to cost."

He added that the safety element "is what we have spent the most time discussing with Peugeot Citroen so far."

The choice of a production location is one of the key elements in the final pricing of the car, Folz said.

The car is "targeted at the European market, eastern and central Europe as well as as the EU," he said.

Cost is one of the key criteria" in choosing a production site, he said.

The choice will take into account "societal, fiscal and logistical costs" to ensure the car is as cheap as possible, he said.

Cho denied it will aim for customers in "emerging markets" such as those of eastern Europe especially, stressing that buyers in Budapest acquire the same cars as those in western Europe.

The cars to be built from the common platform will be designed separately by the Toyota, Peugeot and Citroen teams, he said.

They will be environmentally-friendly, small, four-seaters based on high technological specification, but be "substantially different", the two said.

The two men said they do not rule out that the cars being eventually sold in non-European markets, especially, according to Folz, where there is "the same type of customer expectation and same kind of emerging segment."

Folz did not deny the car could also one day be produced outside Europe. otor Corp and PSA Peugeot Citroen group have

Peugeot and Toyota said earlier in a statement that they have signed a memorandum of understanding on the 50-50 new venture, in which they will invest 1.5 billion euro.

The venture aims to produce 300,000 environment-friendly vehicles a year.