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Three-way deal

April 7, 2010

German carmaker Daimler has entered into a "broad strategic agreement" with Renault and Nissan aimed at developing a new generation of small cars, sharing engines and cooperating on small commercial vans.

Renault, Daimler and Nissan logos
The strategic partnership will see the carmakers take mutual stakes in each otherImage: DW/BilderBox

Under the terms of the deal, the Renault-Nissan alliance will acquire a total stake of 3.1 percent in Daimler. In return, the Stuttgart-based producer of Mercedes-Benz cars will acquire stakes of the same size in both the French and Japanese companies. Renault already owns 44 percent of Nissan.

A statement released by the companies described the strategic agreement as "a win-win situation for both sides: Daimler will be able to utilize Renault-Nissan Alliance engines and capture additional sales potential for Mercedes-Benz's future lineup of premium compact cars, while the Renault-Nissan Alliance will improve its capacity utilization."

Daimler chairman Dieter Zetsche said: "Our skills complement each other very well. ... We know that we can make brand- typical products based on shared architectures. The individual brand identities will remain unaffected."

Daimler CEO Dieter Zetsche
Zetsche has been searching for a partner to strengthen Daimler's small cars division

According to auto industry analyst Christoph Stuermer of IHS Global Insight however, the term "framework agreement" is a more apt description of what the three companies are aiming for.

"The trick of these cooperations is that they are very restricted: to certain vehicles, to a certain project, or to certain development tasks. And there are very distinct roles within the project," he told Deutsche Welle.

Stuermer predicts it's a model that is likely to work for Daimler, whose past attempts at more integrated relationships (such as with Chrysler or Mitsubishi) haven't been successful.

"Possibly one of the reasons that Daimler looked at this is that they have been testing out other means and modes of cooperation, such as buying a whole company or buying a governing share, and it never really worked out," he said. "Now it seems that they are looking for more case-by-case cooperations which are at the same time embedded in a framework agreement."

Focus on small cars, green technology

The first version of the Smart four-seater was seen in 2003
Daimler's Smart "forfour" could get a revamp under the dealImage: AP

Media reports suggest that the trio of carmakers plan to share development costs for products including small cars, luxury vehicles and commercial vehicles, as well as hybrid, electric and fuel-cell technology.

Daimler has been searching for a partner to help it produce small cars profitably. CEO Dieter Zetsche is reportedly eager to engage with Renault on this market segment, and in particular, on the company's Smart minicar, which only managed to break even last year after billions of euros in losses over the past decade.

There has also been speculation that Daimler is ready to take another stab at producing a four-seater Smart on a shared platform with Renault's Twingo, after an earlier attempt at collaborating with Mitsubishi resulted in a commercial flop.

"There will need to be a very detailed analysis of why it didn't work the last time (with Mitsubishi)," said Stuermer. "The Smart and Mitsubishi models proved to be similar and dissimilar in unexpected ways. But this time, Daimler could make it work because they have this very broad learning field from the first episode."

An insider told the Financial Times that the new Smart car could launch as early as 2013.

German industry experts say Daimler could save some 600 million euros ($800 million) in development costs by working with Renault and Nissan.

Nissan's new electronic vehicle, the Leaf, is displayed during an opening ceremony of the company's new headquarters in Yokohama, Japan, Sunday, Aug. 2, 2009.
Renault and Nissan are developing zero-emission cars, among them Nissan's LeafImage: AP

Benefitting from Daimler's know-how

As for the French and Japanese carmakers, they stand to gain most from Daimler's extensive research and know-how in alternative drive technology.

"Daimler has been a pioneer in fuel cell technology, for example, and Renault and Nissan have both made big promises to the public to get electric cars on the roads, so that's where they stand to gain," Stuermer said.

This reflects a current trend in the global auto sector, which has seen carmakers pooling their resources to cut the cost of their investments in greener technologies and fuel-efficient cars.

Further details of the three-way agreement are expected to be made known when the companies make their official announcements, expected by Wednesday night at the latest.

It seems clear, though, that given the losses suffered in 2009, none of the carmakers will be using cash for the transaction. Daimler is expected to use treasury shares to acquire its stakes in Nissan and Renault.

Author: Deanne Corbett
Editor: Sam Edmonds