Under the agreement, BMW will provide Saab with four-cylinder 1.6-liter turbocharged gasoline engines starting in 2012. The engines will be adapted to meet Saab's specific requirements.

The contract was signed in Trollhattan, Sweden, by Saab CEO Jan Ake Jonsson, Saab Chairman Victor Muller and BMW board member for sales and marketing Ian Robertson.

“This is a major step for Saab on our road to becoming a profitable independent premium carmaker,” Muller said in a statement. “In line with our strategy, we will continue to capitalize on our own engineering expertise while also working with the very best partners. Both parties are open to explore further opportunities as part of this relationship in the future.”

Robertson added that the deal is part of BMW's aim to expand its sales of powertrain systems.

“Today's agreement marks another important milestone along this route. We are delighted to support Saab with our engine expertise,” Robertson said in a statement. “Our engines have a clear lead over the competition when it comes to fuel consumption, emissions and performance.”