Dec. 13 (Bloomberg) -- General Motors Corp. and DaimlerChrysler AG will jointly develop a gasoline-electric power system to catch Toyota Motor Corp. and Honda Motor Co. in the technology that saves fuel and cuts tailpipe emissions, said people familiar with the plans.

Toyota tripled sales of its so-called hybrid cars in the first 11 months of this year, as gas prices climbed 27 percent and states such as California adopt tougher rules to limit pollution. Toyota has been selling the Prius hybrid since 1997 and Honda started selling gas-electric models in 1999.

General Motors and DaimlerChrysler lag in the development of gas-electric vehicles, opting instead to design cars and trucks that run on hydrogen fuel cells and improving the efficiency of gasoline and diesel engines. Their venture, announced seven years after Toyota and five years after Honda, is an acknowledgement that gas-electric models are here to stay, analysts said.

``It shows that hybrids are becoming the mainstream of environmentally friendly cars, given that fuel cell vehicles will not be available until the longer term,'' said Koji Endo, an analyst at Credit Suisse First Boston in Tokyo. ``Toyota and Honda won't be threatened by the alliance at this point.''

The venture will be announced by Detroit-based General Motors and Stuttgart, Germany-based DaimlerChrysler today, the people familiar said. The two companies previously cooperated in developing transmission systems.

General Motors' Detroit-based spokesman Kyle Johnson declined to comment. Jason Vines, spokesman of DaimlerChrysler's Chrysler unit in Auburn Hills, Michigan, declined comment.

Toyota's shares rose as much as 1.8 percent to 3,920 yen and traded at 3,890 yen at 2:03 p.m. in Tokyo. Honda shares gained as much as 2.2 percent to 5,220 yen and changed hands at 5,180 yen.

General Motors' shares rose 1.5 percent to $38.93 in New York on Friday, while DaimlerChrysler shares gained 0.4 percent to 34.5 euros in Frankfurt on Friday.

Tax Breaks

A hybrid vehicle works by combining a conventional gasoline motor with an electric engine. At low speeds, the electric motor powers the vehicle and the gasoline engine kicks in as the car gains speed on highways. The vehicle's battery pack is charged by using the gasoline engine and by the brakes.

Building a hybrid may help the customers of General Motors and Chrysler qualify for a 2001 U.S. tax break. While Ford Motor Co., the second-biggest U.S. carmaker, backed the tax provision, Toyota's Prius and Honda's Civic and Insight are the main beneficiaries of the $2,000-per vehicle credit.

Ford in September began selling its first hybrid, the Escape sport-utility vehicle, using some technology licensed by Toyota. The Escape became eligible for the tax break this year. General Motors and Chrysler had said they didn't plan to sell models that qualify for the tax break, which was extended to 2006, until the 2007 model year.

Environmentalists

DaimlerChrysler and General Motors introduced pickup trucks this year they call hybrids, for business and government customers, that are less sophisticated than Toyota and Honda models and don't qualify for the tax breaks.

Chrysler's hybrid RAM pickup shuts off its diesel engine when stopped and uses the electric motor to accelerate. Less than 100 vehicles are to be delivered this year.

General Motors in May delivered 50 gasoline-electric hybrid pickups, which cut fuel use about 10 percent, to Miami-Dade County in Florida, and has orders for thousands more to business and retail customers, the company said in June.

A hybrid vehicle also might help General Motors and Chrysler win congressional support to limit future increases in fuel economy standards for other cars and trucks, a demand of environmental groups. Last year, the U.S. raised fuel economy standards by the biggest margin in 20 years, over the objection of automakers.

Prius Popularity

The Prius is the most popular of hybrid vehicles, sporting such celebrity customers as actors Leonardo DiCaprio and Cameron Diaz. The model sells for about $25,000 in the U.S., with a typical waiting period of as long as six months.

The car can go as far as 55 miles on a gallon of gasoline, more than double the mileage for a conventional car of comparable size. The car emits 90 percent less tailpipe exhaust than average new cars of a same-size engine, according to the U.S. Environmental Protection Agency.

Toyota said in December 2003 that it would expand its monthly production of the Prius to 15,000 from 10,000 units, to help meet demand for the car, which sold 47,704 units in the year through November, more than triple the same period last year.

The company has said it expects global sales of the model to reach 130,000 this year, and has also announced plans to make hybrids in China.

Other Hybrids

Toyota, Asia's largest automaker, next year will also begin selling hybrid versions of its Highlander and Lexus RX sport- utility vehicles in the U.S. and Canada.

Those models, along with Prius, may lift Toyota's global hybrid sales to 1 million or 2 million units a year by 2010, company President Fujio Cho said on Sept. 10.

Honda, which sells Insight and Civic hybrids in the U.S. and plans a gas-electric version of the Accord sedan, said this month that it will sell about 50,000 hybrids in the U.S. in 2005.

Toyota and Honda combined sold 71,177 gasoline-electric cars through 11 months.

Fuel Cells

General Motors and DaimlerChrysler have said the gasoline engine in use for more than 100 years eventually will be replaced by fuel cells that generate electricity by combining hydrogen and oxygen in a chemical reaction that emits only water vapor.

``It is interesting to see what kind of hybrid system the automakers will come out with and how they can avoid paying royalty payments to Toyota and Honda,'' Credit Suisse's Endo said.

General Motors has said it will have a fuel cell model that can compete on cost with gasoline by 2010. DaimlerChrysler has said it will have 100 experimental fuel cell vehicles in use by the end of this year, including 19 in the U.S.

DaimlerChrysler this year introduced two diesel-powered vehicles that get 30 percent to 40 percent better fuel economy than gasoline models. Sales of the Mercedes E-320 sedan exceeded the 4,000 expected. Chrysler has 40,000 inquiries for a Jeep Liberty SUV diesel that was expected to sell 5,000.

Ford, Honda

Ford expects to sell as many as 20,000 Escapes next year. Ford developed its system independently. The electric motor in the Escape Hybrid provides power at slow speeds and provides a boost for the gasoline engine when the SUV accelerates.

The hybrid technology in the Honda Civic uses an electric motor to send power to the wheels to reduce the demands on the gasoline engine.

To contact the reporter on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net

Last Updated: December 13, 2004 00:06 EST