DETROIT -- General Motors and DaimlerChrysler are teaming up to develop fuel-saving hybrid technology for a range of vehicles that will help them compete with hybrid-vehicle leaders Toyota and Honda.

GM, the world's largest auto maker, and its German-American rival have signed a memorandum of understanding and intend to enter into a definitive agreement early next year, the two companies said this week.

"Our planned co-operation will draw on the technical expertise of two of the largest auto companies in the world," DaimlerChrysler board member Thomas Weber said in a news release.

"The result is expected to be a series of strong hybrid propulsion systems that will serve as a solution for our alternative powertrain needs."

Hybrids draw power from two energy sources, typically a gas or diesel engine combined with an electric motor.

Demand has grown worldwide because of concerns about the dangers of global warming and decreasing natural fuel supplies.

GM and Chrysler both sell a small number of "mild" hybrid pickups, but the systems are less advanced than those used on cars sold by Toyota and Honda.

Toyota said in October it would double the allocation of Prius hybrid cars for the U.S. market in 2005, part of a company-wide goal to sell 300,000 gasoline-electric hybrid vehicles worldwide by the end of next year. The announcement coincided with the sale of the 100,000th Prius in the United States, where they went on sale in the summer of 2000.

Honda last week began selling its third hybrid car, a high-performance version of its popular Accord sedan.

In early August, Ford began producing a hybrid version of its Escape SUV, the world's first gas-electric hybrid SUV.

GM and DaimlerChrysler have been working independently on their own hybrid propulsion systems for their range of passenger vehicles. The jointly built "two-mode" hybrid system will be used in GM, Chrysler and Mercedes vehicles.

Variants planned include rear- and front-wheel-drive versions for cars, trucks and other vehicles.

In their statement, GM and DaimlerChrysler said today's typical single-mode hybrid systems rely on much-larger electric motors than are needed in their patent-protected two-mode system.

Tom Stephens, GM's group vice-president for powertrains, called the two-mode design "the optimal merging of full hybrid and state-of-the-art automatic transmission technologies.

"This system will reduce fuel consumption at highway speeds much more effectively than available single-mode systems and achieve at least a 25-per-cent improvement in composite fuel economy in full-size truck applications," Mr. Stephens said.