General Motors and DaimlerChrysler (DC) are to collaborate on the creation of petrol-electric hybrid engines.
The largest and fourth-largest car firms in the world, they have often played down moves by Toyota and more recently Ford towards hybrids, but now seem to accept the success of such vehicles.
The move is a major U-turn, especially for DaimlerChrysler which has repeatedly voiced doubts on fuel economy benefits of hybrid powertrains over diesel.
However, both groups deny the change of heart has been driven by the dramatic success of Toyota's Prius petrol-electric hybrid car, which was recently named European car of the year and currently holds the title of North American car of the year. Toyota's luxury brand, Lexus, will launch a hybrid of its RX SUV range next spring.
During a conference call briefing this week, senior GM executives said both companies had been working on hybrid development for some time and came together to compare progress back in October 2003.
They were also quick to stand over their previous scepticism. "Today's current market size for hybrids is obviously very small," said Eric Ridenour, head of product development at Chrysler. "But we do see that market growing. We see them becoming a niche, but a significant niche."
He pointed to independent forecasts that hybrid engines could power 5 to 15 per cent of the world's cars by 2020.
The first vehicles to make use of the new hybrid powertrain will be in the US, with the Chevrolet Tahoe and GM Yukon released in late 2007, said Ridenour.
No details were forthcoming on when DC will bring the technology to its Mercedes brand, although there have been persistent rumours that the German firm has been working on a hybrid S-Class.