Toyota's future IQ will be powered by a Yamaha engine, according to Automotive News. It is rumored that Yamaha will design the engine and may even build it for Toyota.

Toyota wants its 3+1 car to be bigger than the two-seat, 2695mm Smart ForTwo but smaller than the 3400mm, four-seat microcar planned by VW. To keep the IQ under 3000mm, Toyota turned to Yamaha for what sources say is a two-cylinder, 1.0-liter unit that will be mounted up front.

Using a motorcycle engine will help Toyota reduce the length of the IQ’s engine bay. That is because parts such as the transmission can be located within the engine block and components such as the air-conditioning module which can be bolted onto the side of the engine.

Toyota plans to start IQ production in Japan at the end of 2008. Shipments to Europe will begin in January 2009. In Europe, the IQ will be priced between the Aygo minicar and the Yaris small car. That which means it will cost about 13,000 euro.