Project Kimber - the consortium which missed out in the auction to buy MG Rover last year - has inched closer to producing its own range of Smart Roadsters.

The group, which includes several notables from the Midland automotive industry, has signed a memorandum of understanding with DaimlerChrysler to build the two-seat sports car under licence.

No money has changed hands so far, but the memo could lead to a contract to make Roadsters and coupes under the AC Cobra name.

While talks are expected to be concluded in the next few months, production is likely to be delayed until next year as Kimber secures funding and examines possible factory sites.

Last week it was claimed that the group was in discussion with Nanjing Automobile - which bought MG Rover for £53 million - to use the MG name on its new cars.

Kimber had always wanted to use the Smart cars as the basis for its revival of the MG Midget, but Nanjing rejected the claims and said it was determined to hold onto the brand.

Now Kimber is thought to be considering other names, including AC Cobra, for the 120mph cars which will be remodelled by former Jaguar designer Keith Helfet.

Meanwhile, the consortium, which is led by industry trouble shooter David James, is thought to be considering plants in the Midlands and Wales to produce the cars.

Coventry has been identified as a potential location after the city council brought an unused assembly site, in a former Dunlop factory, to Project Kimber's attention.

But it faces competition from a greenfield site in Bridgend in South Wales and Erfurt in eastern Germany.

A decision is likely to be based on what government grants are available to restart production at a site which could, it is thought, create several hundred jobs.

Project Kimber would not comment on the progress of the talks, but Smart said: "The goal of the memorandum of understanding is to jointly draft a contract within the next few months which would give Project Kimber the licence to redesign produce and sell the former Smart models Roadster and Roadster coupe under a different brand.

"Additionally, the MoU includes the intention to purchase production equipment for both models that is not needed by Smart any more," the firm added. Smart discontinued the Roadster and its coupe derivative last year as part of an initial broad restructuring of the brand, which has not made a profit since its creation.

It also scrapped plans to build a compact offroader, instead focusing its model range on just the brand's original ForTwo minicar and the subcompact ForFour.

The Roadster was seen as the spiritual successor to the 1970s MG Midget and Austin-Healey Sprite, and Britain has been its biggest market.

When its demise was announced, Smart UK persuaded the factory in Hambach, France, to make a last batch of 400 Roadsters to sell in the UK this year.

Last week, Daimler chief executive and Mercedes head Dieter Zetsche said Smart had narrowed its operating loss in 2005 from around £410 million in the year before.

While Mr Zetsche has said he wants to give the division time to achieve its target of breaking even next year, he has already tasked Goldman Sachs with the job of screening parties potentially interested in buying the brand.