FRANKFURT -- Daimler is considering building compact Mercedes-Benz passenger cars with its partner Renault-Nissan, German business daily Financial Times Deutschland reported, without citing sources.
Renault-Nissan and Daimler agreed to a partnership in 2010 intended to pool development and production of small cars and engines.
The report said the first cars might be built jointly from 2016 in eastern Europe and could include a compact Mercedes SUV built alongside vehicles from Nissan's premium brand Infiniti.
Mercedes currently builds the B-class compact at its factory in Kecskemet, Hungary, and will begin output of the CLA compact coupe at the plant next year.
The automaker is seeking to boost volume sales and make the brand more attractive to younger buyers by expanding its compact lineup from two current models -- the A class and B class -- to five cars, including the coupe and later an SUV and shooting brake.
Annual sales of Mercedes compact cars are expected to reach 500,000 from 2015, accounting for a third of the cars built by the automaker then, according to data from IHS Automotive. In 2011, Mercedes sold 178,000 compact cars.
Daimler's joint production with Renault-Nissan could help narrow the gap with rivals BMW and Audi whose second-quarter operating margins of 11.6 percent and 11.5 percent respectively far exceeded the 8.6 percent at Mercedes.
"Mercedes is lagging its key rivals and has been under strong pressure for about a year to post better results," said Metzler Bank analyst Juergen Pieper. "They're trying hard to shake off their loser image."
Spokesman for Daimler and Renault declined to comment on the report.
Under intense pressure to shave costs, automakers have sought to develop or expand alliances that give them access to car segments not yet in their portfolio or to new markets.
General Motors Co. and PSA/Peugeot-Citroen announced a global alliance in February with the U.S. automaker taking a 7 percent stake in PSA as part of a deal that includes pooled purchasing and research and development.
GM is banking on the partnership to help it reverse 12 years of losses in Europe while PSA hopes to boost sales outside its core European market.
BMW and Toyota agreed in June to extend their cooperation to a bigger strategic alliance including projects on fuel cells, electrified powertrains and lightweight construction. The move caused BMW to end cooperation with GM and its partner PSA.
"Nissan is a good, respectable partner," said Pieper, adding there was no need for concern at Daimler that opening up Mercedes to co-production might harm its reputation.
"A jointly-built SUV makes good sense. Such customers aren't as sensitive as S-class buyers."