Will a mini Mercedes powered by a Renault-Nissan engine still command a luxury-brand premium?
Daimler AG is confident it will, as the German automaker teams up with France's Renault and Japan's Nissan to share parts and platforms and make more cost-efficient and competitive small cars, forming an automotive three-way alliance that they hope will help them ride out a sales slump.
The car makers aim to strip out billions of euros (dollars) in costs over the next five years by sharing parts and development costs, mainly in energy efficient compact cars such as the Renault Twingo and the Mercedes Smart car.
Analysts say there is little risk that the cachet of Mercedes' flagship brand will take hit from the deal, as the parts sharing will be limited to the small car division.
The risk of brand contamination for Daimler's Mercedes is "practically zero," said Juergen Pieper, an analyst at Metzler Equities in Frankfurt, pointing to Volkswagen AG's stewardship of the high-priced Bentley brand.
"Bentley is practically 70 percent Audi, and do the people who spend 200,000 euros for a Bentley think about that? No, I don't think so," he said. "It's really touching only small cars and this is not a sensitive part of the group."
Helmut Becker, an economist at Germany's IWK think tank said customers "probably won't notice much" in Daimler's smaller model ranges, the A-Class and B-Class.
"It remains a Daimler car ... there is no mixing-up in the product lineup, and it will happen under the hood," he said.
Top executives from Renault and Daimler also took pains to stress that their brands would keep their separate identities, even if the engines that power the cars start to look more and more alike.
"Each brand has its own identity and its own kind of products and its own cost and price level," Renault boss Carlos Ghosn said. "We need to keep each brand very different from the others."
Ghosn said the companies had quizzed customers of Nissan's luxury brand Infiniti vehicles and Mercedes and believed that sharing engines would not cannibalize sales of either.
"People buying Infiniti or Daimler, they don't cross-shop between the two brands," he said. Infiniti buyers show interest in Lexus, Audi and BMW "but very little in Mercedes. We came to the conclusion that Mercedes collaborating with Infiniti will not be hurting each other," he said.
The partnership comes amid a painful industrywide slump and will focus on sharing the development and production of chassis and engines. The move will be sealed with a cross-shareholding giving the three companies a small, symbolic stake in each other.
Speaking at a joint news conference Wednesday in Brussels, Daimler boss Dieter Zetsche cited rising demand for small cars as a key driver behind the alliance.
"Since the small and compact vehicle segment is so highly competitive and price sensitive we also need to have the right cost structure," Zetsche said.
Government cash-for-clunkers programs and customer concerns over fluctuating fuel prices have helped push sales of smaller cars over heavier gas guzzlers and luxury models.
Cooperation will include developing a common chassis for two of the automakers' small cars, Daimler's Smart Fortwo and Renault's Twingo. The partnership will also extend to sharing gasoline and diesel engines, with Daimler's Mercedes-Benz using Renault-Nissan engines for its future lineup of premium compact cars, and Nissan's Infiniti using 4- and 6- cylinder engines from Daimler, the companies said.
"Right away we are strengthening our competitiveness in the small and compact car segment and are reducing our CO2 footprint — both on a long-term basis," Zetsche said.
Zetsche said the partners "will work together to examine further possible areas of cooperation" beyond those detailed Wednesday.
Renault Chief Executive Carlos Ghosn said European Union restrictions on cars' average carbon dioxide emissions — achieved by lower fuel consumption — was also a factor in the deal. Companies could face fines if they don't gradually reduce CO2 output after 2012.
Small cars are less profitable and sharing parts and platforms allows the companies to build them more cheaply.
The executives estimated that the Renault-Nissan alliance and Daimler would each achieve 2 billion ($2.7 billion) in cost savings and additional sales from the new alliance over the first five years. The savings will be made through sharing of production and development costs as well as economies of scale through some joint purchasing, the companies said — and not through layoffs.
Renault's Ghosn, who also heads Japan's Nissan, said the alliance was just the latest step in a wave of industry tie-ups for Renault and others.
"The name of the game is to be present everywhere," Ghosn said, "so we are going to move for more and more consolidation."
"Do not be surprised if we continue to add scale," he said.
Renault and Nissan will each take on a 1.55 percent stake in Daimler, which in turn will take a 3.1 percent stake in each of the other two.
The move will add to Renault and Nissan's existing 11-year-old alliance, that has made it the world's fourth largest automotive group with sales of 6.1 million vehicles last year. They share development costs and Renault owns a 44 percent stake in Nissan.
Ghosn said Renault and Nissan's cooperation with Daimler could also eventually see them share technology for electric cars and batteries. He has been a vocal proponent of electric vehicles and predicts the segment will grow to about 10 percent of global sales by 2020.
Other automakers — including Chrysler, Mitsubishi and Ford — are also touting plans for cars with electric motors as the industry seeks to overcome the current sales slump and meet tougher environmental and carbon emission standards.
Daimler's boss ruled out any possibility that the deal with Renault and Nissan could evolve into a full merger like the stormy marriage it had with Chrysler from 1998 to 2007.
"At this point in time there is no thought of going further," Zetsche said.
The Wednesday deal is the car makers' response to a sharp sales downturn as recession-hit consumers shunned spending on big-ticket items. Last year Renault made its first annual loss since it was privatized 13 years ago. It predicts another tough year in 2010.
Daimler, which relies heavily on costly luxury cars likes its Mercedes, lost 2.6 billion euros last year after taking charges including 294 million euros to settle its exit from a failed alliance with Chrysler LLC.
© Copyright 2017 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.