MILAN, Italy - Excitement over Alfa Romeo's prospective return to the United States has led to a lot of premature or rumor-based reporting. Most recently, it was said that Fiat and BMW had signed a letter of agreement in early July - which, among other things, was said to mean BMW would help Fiat get Alfa back to the U.S. sooner and more smoothly. More intriguingly, reports have been that Mini and Alfa were linked in development of the next Mini and premium hatchbacks for an approximate 2012 debut. The question on everyone's lips: What are doing together?

IL's Fiat and BMW contacts say reports of a letter of agreement are hogwash. No letter has been signed yet - just an announcement of intent to feel out the link and to see how clients and investors react. It puts one in mind of the famous Audi-Maserati letter of agreement in 2003 that was signed - and then embarrassingly torn to shreds once the two sides realized that nothing could be worked out. Or the announcements by Renault during BMW's development of the rear-wheel Integral Active Steering on the new that BMW and the French were collaborating on the technology. BMW swiftly rejected the report, and Renault ceased its overexcitement.

At the moment, Fiat and BMW are working together on a project-by-project relationship like that between Chrysler and Nissan for smaller vehicles. In this case, BMW and Fiat are confirming development of a premium minicar, its V2 powertrain, and the necessary continuously variable transmission (CVT). Fiat is also creating a 105-horsepower turbocharged version of the two-cylinder engine.

Spy shots have recently circulated of the Fiat Topolino testing in Northern Italy, while so far we have seen only artists' conjectures as to the exterior of the planned BMW Isetta. The Topolino is aimed for a 2010 introduction, and the Isetta could be expected about a year later. Fiat is currently further along on the Topolino project than BMW is on the Isetta, but both working together will accelerate this to-market timeline.

Close contacts tell IL that Magna Steyr brought Fiat and BMW together. Both companies were working with the Austrian firm on small-car technologies at the same time; the various engineering teams hooked up, and minicar project development was one of the results. The chief goal in all this is, of course, to contain costs. An Italian source commented: 'Development of a proprietary 900cc V2 engine is a much larger cost burden than you'd think.' Then there's also the planned CVT that would drive the powertrain.

Says a Fiat Powertrain contact: 'We've played a long time with a rear-engine setup, but we've had troubles with vibration and lubrication.' In fact, Fiat has instead chosen — as Volkswagen has recently selected to do with the configuration — to place the two-cylinder motor up front in the front-wheel-drive architecture. Meantime, BMW confirms that the Isetta will keep the engine in the rear, and that this expertise of solving NVH and fluid-flow issues is part of what BMW brings to the table.

Whether this all develops into Alfa Romeo cars being sold in BMW showrooms appears unlikely. It would make no sense to have direct competitors in the same showroom. The two could, however, share homologation, production and distribution costs.