Mazda Sky engine, Toyota hyrid technologyDespite Toyota Motor's (TM) recent image problems caused by numerous safety recalls, the technology used in hybrid models, such as the popular Prius, remains the gold standard -- and the envy of other companies within the industry. So it's little surprise that other manufacturers have sought to deploy the fuel-saving technology in their own cars through licensing agreements.

The latest of those link-ups is with Japan's fifth largest car maker, Mazda Motor, which will use Toyota's hybrid technology to develop and produce its own line of hybrid vehicles, the companies announced Monday. Mazda plans to combine the hybrid system with its next-generation "Sky" engine (pictured), currently under development, and plans to begin selling the vehicles in its home market beginning in 2013.

Toyota has an existing agreement with Nissan Motor, Japan's No. 3 auto maker, for use of hybrid technology in vehicles Nissan sells in the U.S. Ford Motor (F) used Toyota's technology on its first generation hybrid vehicles, but has since deployed its own proprietary system.

Ford once owned a controlling interest in Mazda. But as the Dearborn, Mich.-based company has shed brands, it has reduced its stake in the Hiroshima-based auto maker to 11% from 33.4%. The companies continue to share some vehicle platforms and operate joint factories, including one in Flat Rock, Mich., where Ford builds its popular Mustang "pony" car.

Hybrids Growing Fast

Hybrids have become hot sellers in Japan thanks to generous government incentives that exempt the vehicles from certain taxes. Wanting to cash in, Mazda began negotiating with Toyota about a year ago to begin producing its own hybrid vehicles. The technology, which combines both electric and gasoline engines, reduces the amount of fuel consumed, improving gas mileage and reducing emissions.

"Hybrids are spreading fast in Japan, and launching a model in the domestic market has become an urgent task," Mazda Executive Vice President Masaharu Yamaki told a joint news conference in Tokyo, Reuters reported. "That is one of the reasons why we decided to seek this agreement with Toyota," he said. As for Mazda's plans for producing hybrids outside of Japan? According to Reuters, Yamaki declined to say.

Key components such as battery packs, controls units, inverters and regenerative braking units will be procured from Toyota suppliers, Reuters reported.

The newest generation Prius, which hit U.S. showrooms last May, has been recalled due to problems with its regenerative braking system. Toyota has recalled some 370,000 hybrid vehicles worldwide, the vast majority of which are Priuses, to fix the glitch, which owners say reduces braking ability on bumpy or uneven road surfaces.

Despite the recall, the Prius has remained a top seller in Japan, thanks in large measure to a backlog of Prius deliveries. Strong demand has forced some customers to wait. But the Prius remains popular in the U.S., too, where sales rose 8% in February, as Toyota's overall sales fell nearly 9%.

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