Daimler, Renault show BMW, PSA the way ahead

The cooperation pact between Daimler and Renault is good news for the two carmakers because it will help each company strengthen areas where they are weak. But it will increase pressure on Renault's French rival, PSA/Peugeot-Citroen, and Daimler's German premium competitor, BMW, to agree on a similar wide-ranging partnership

BMW and PSA have been discussing how to broaden their current engine cooperation for months. So far, they have not been in a hurry to make a deal but now the pressure will increase for the two companies to create an alliance that will give them the same economies of scale that Daimler and Renault aim to achieve.

BMW is developing a new front-wheel-drive architecture for its Mini brand and for new BMW brand small fwd cars. The Bavarian automaker could get scale advantages if it involves PSA in the project.

PSA would benefit hugely if BMW agreed to supply the French company with the large gasoline and diesel engines PSA needs to move upscale.

BMW is going it alone in developing electric cars while PSA will launch in Europe later this year electric minicars built in Japan by Mitsubishi Motors. It is much more efficient to share with a partner the investments required to make combustion engines more fuel efficient, which means less CO2, and to jointly develop affordable electric vehicles.

The Quandt and Peugeot families, which control BMW and PSA, want to strengthen their companies but do not want to weaken their shareholding control and operating identity.

Daimler's Zetsche and Renault's Ghosn have shown the Quandts and the Peugeots the way ahead -- a limited cross-shareholding that does not dilute the existing controlling shareholders but offers broader scope and wider cooperation than a one-off agreement on a specific engine or vehicle.

These are the benefits that Daimler and Renault will get from their strategic alliance.

• Daimler's chronically money-losing Smart brand has been saved from being scrapped now that the next ForTwo minicar and a new four-seat Smart subcompact will be built on an architecture shared with the replacement for the Renault Twingo minicar.

• The companies will cooperate on electric car development, and probably will supply batteries to each other for their EVs.

• Renault cars and Nissan's Infiniti brand will get Daimler's large diesel and gasoline engines. Infiniti needs competitive big diesels for Europe, but lacks scale to build them in a profitable way.

• Daimler's Mercedes-Benz car unit will use small engines developed by Renault-Nissan to expand the powertrain lineup of its new small-car range that will replace the A class and B class.

Daimler and Renault are following other automakers in forming strategic partnerships. Volkswagen AG has plenty of scale with its 10 brands but has also sealed an alliance with Suzuki. Fiat has partnered with Chrysler Group.

BMW and PSA are lagging behind and should follow sooner rather than later.

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