Trouble-hit Mitsubishi Motors is in talks with French carmaker PSA Peugeot Citroen about a possible alliance.
Mitsubishi car sales fell more than 40% during 2004
On Tuesday Mitsubishi, the only major Japanese car firm in the red, confirmed earlier reports of negotiations.
But a spokesman refused to comment on speculation that Mitsubishi could end up building cars for PSA and perhaps its Japanese rival Nissan.
Mitsubishi has been hit by a recall scandal and the withdrawal of support from shareholder DaimlerChrysler.
The US-German firm, once a majority shareholder, decided last April to stop providing financial backing.
Mitsubishi's sales have slid 41% in the past year, catalysed by the revelation that the company had systematically been hiding records of faults and then secretly repairing vehicles.
Mitsubishi is due to unveil a recovery plan later in January.
Analysts said that alliances with other carmakers would be a necessary part of whatever it came up with, not least because its own slow sales have left its manufacturing capacity under-used.