India's second largest manufacturer of two-wheelers, Bajaj Auto, and French car maker, Renault are in discussions for a new vehicle venture.

The firms said last week that they are in talks, but stopped short of confirming that they planned to build a small car.

Bajaj Auto and Renault are in preliminary deliberations to jointly understand customer requirements and business potential for very competitive vehicles in India, the two companies said in a joint statement. If concluded favorably, this can lead to a long-term partnership between Renault and Bajaj for the development of the business so conceived.”

Renault, which has entered into a joint venture with India's leading SUV maker Mahindra & Mahindra (M&M) for marketing of a no-frills sedan, Logan, in the Indian market, is interested in developing a small car priced at $3,000, which could pose a serious threat to Tata Motors' dream car project, the sub-$2500 people's car that is due to debut from of its Singur plant next year.

We have had contacts with Bajaj Auto and that was about the $3,000 car, but we are still in a phase of making up our mind, a Renault spokeswoman said.

Renault currently has two separate joint ventures in India with M&M. One is a three-way agreement between Renault, M&M and Japan's Nissan, for setting up a green-field project in Chennai and the other one is between M&M and Renault, for marketing Renault's no-frills sedan, Logan, in India.

Earlier, Carlos Ghosn, who heads both Renault and Nissan Motor Co., had said Mahindra and Mahindra would be a natural partner if they were to develop a small car.

M&M reportedly felt that a sub-$5000 car would not bring in the kind of margins that would justify the size of the investment. Besides, it did not see the idea complementing its own long- term plans of being a global player in the SUV segment. This resulted in Renault searching for suitors elsewhere.

The growth path of M&M and Renault doesn't match, with M&M vying for a top-slot in SUVs and Renault planning to cash in on the growing small car segment. If the growth paths are clearly taken care of, both the companies will grow, business daily, Financial Express quoted V.G. Ramakrishnan, Director (Automotive and Transportation Practice), Frost & Sullivan, as saying.

Industry watchers have claimed that rising manufacturing costs and demands of secured volumes by vendors might actually hike up the on-road prices of the offerings from the Tata and Renault stables.

Both Tata Motors and Mahindra & Mahindra are reportedly in the race to acquire struggling U.S. automaker Ford Motor Co.'s Jaguar and Land Rover brands.