BMW, the world's largest premium carmaker, and its closest rival, Mercedes-Benz, are in negotiations over a partnership to build subcompact cars, German motor magazine Auto Bild reported.

In July, the two companies are expected to make a decision on whether to build the next generation Mercedes A-Class on BMW's Mini platform, Auto Bild said in its forthcoming Friday edition without citing sources.

Heavy cost pressure means Mini runs the risk of losing money should its Oxford, England, plant not run at full capacity, so parent BMW is considering finding a partner.

Discussions could include Honda and existing partner PSA, and Mercedes, its arch-rival, as well.

Mercedes for its part planned on building the next A-Class in 2012 on a platform to be developed jointly with Chrysler, but these plans have been dropped after parent DaimlerChrysler's disposal of its majority stake in the loss-making U.S. carmaker.

BMW's sales and marketing head, Michael Ganal, suggested early last month in an interview with German business magazine WirtschaftsWoche expanding its current cooperation with Mercedes, which develops hybrid powertrains, into other fields as well.

He was speaking generally about possible further partnerships, a BMW spokesperson said.

Ganal's opposite number, Mercedes sales chief Klaus Maier, denied days later there were any plans at present to expand the partnership any further.

A spokesman for Mercedes said the brand remained open to cooperation where it makes sense but reaffirmed Maier's comments that there were no current plans to expand its hybrid partnership with BMW into other areas.