The partnership will be sealed with a cross-shareholding

Carmakers Renault SA, Nissan Motor Co. and Daimler AG on Wednesday unveiled a wide-ranging alliance to help them compete better in the market for small, fuel-efficient vehicles.

The partnership comes amid a painful industry-wide slump and will be sealed with a cross-shareholding giving the three companies small, symbolic stakes in each other.

Speaking at a joint news conference on Wednesday here, 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,” Mr. Zetsche said.

Government cash-for-clunkers programmes and customer concerns over fluctuating fuel prices have helped push sales of smaller cars over heavier gas guzzlers and luxury models. Small cars, however, often have thinner profit margins, and sharing parts and platforms would give the companies a chance to build them more cheaply. The heads of Renault and Daimler estimated that they would achieve euro 2 billion ($2.7 billion) in cost savings and additional sales from the new alliance over the first five years.

Renault and Nissan will each take on a 1.55 per cent stake in Daimler, which in turn will take a 3.1 per cent 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.

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, the companies said.

Zetsche said the partners “will work together to examine further possible areas of cooperation” beyond those detailed Wednesday. But Daimler's boss ruled out any possibility that the deal with Renault and Nissan could evolve into a full merger.

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