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Renault deal has attractions for Daimler

When Dieter Zetsche, Daimler’s chief executive, held alliance talks with BMW last year, he floated the idea of a cross-shareholding with his company’s German rival.

His request was spurned by BMW and its controlling family shareholders, the Quandts, who saw themselves as stronger than Daimler.

A year later, Daimler has a new possible alliance partner in Renault, a company in weaker financial shape than itself, which has floated the idea that the two companies acquire mutual equity stakes as part of a broader partnership.

But, unlike the Quandts, Mr Zetsche might find it harder to decline the overture from Carlos Ghosn, Renault and Nissan’s chief executive.

The French company is far stronger than Daimler in small cars, an area where it has struggled for years to be competitive.

“Mercedes needs Renault more than Renault needs Mercedes,” Max Warburton, analyst with Sanford Bernstein, wrote in a research note published on Monday. “Renault’s small car platforms, low CO2 small diesel engines and cost-reduction expertise are all attractive to Mercedes.”

During an economic crisis that has accelerated a broader trend away from the luxury sedans in which Mercedes excels and into fuel-efficient cars, Mr Zetsche’s quest for a successful alliance has gained more urgency.

In a recent interview with the Financial Times, Daimler’s chief said that in compact cars, “we certainly strategically would benefit from a co-operation with some volume-carrying partner”.

Daimler’s Smart small car brand has only recently begun to turn a small profit after burning billions of euros for more than a decade.

Its Mercedes A and B-Class compact models sold 216,000 units in 2009, compared with 467,000 Renault Megane cars and 2.136m units of Volkswagen’s Golf family, according to Mr Warburton.

In December, Daimler said it was talking to Renault about co-operating in small cars.

The two companies are talking about developing a joint small-car platform based on Renault’s Twingo that would enable Daimler to bring a four-seater Smart model back to the market.

Its previous four-seater Smart, built in co-operation with Mitsubishi, flopped.

On Monday, a person close to the talks said their scope stretched beyond this to Mercedes A and B-Class cars, and possibly light trucks, where Daimler currently works with VW.

“If you’re going to do this, you don’t do this for one project,” a second person familiar with the talks said.

Both companies face steep research and development costs to develop cleaner engines and new technologies, such as electric cars, an area where the French carmaker is a frontrunner.

But analysts were sceptical on Monday that the talks would conclude in an agreement to swap shares.

Daimler has an unhappy history of foreign partnerships, notably its nine-year tie-up with Chrysler that ended in 2007.

Analysts said that the companies could still broaden their co-operation without exchanging stakes, as PSA Peugeot Citroën and Mitsubishi decided earlier this month after inconclusive talks on a cross-shareholding.

Source: Financial Times

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