Last updated: March 15, 2010 7:58 pm

Daimler and Renault explore tie-up

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Daimler and Renault are discussing acquiring mutual equity stakes as part of a possible alliance that would go beyond their current talks on small cars, two people briefed on the matter told the Financial Times.

If the talks are successful, the German and French carmakers would take stakes in each other as part of “a longer-term framework for co-operation”, according to one of the people.

Discussions have been long-running, and are still ongoing, these people said. Renault and Daimler declined to comment.

One of the people familiar with the talks said that the stakes to be bought or swapped were likely to be smaller than 10 per cent.

Daimler and Renault said in December that they were discussing a possible partnership on small and compact vehicles.

Both companies, like all carmakers, are in constant talks with their competitors about pooling costs and building scale for costly new technologies and cars. These have intensified during the industry’s current deep recession.

“We’re talking to many people in the industry,” Carlos Ghosn, Renault and Nissan’s chief executive, said in Geneva this month. “The name of the game is scale and co-investments and sharing technologies.”

Renault, which is already in an 11-year-old cross-shareholding alliance with Japan’s Nissan, has long spoken of adding a third partner.

Daimler, which has a history of unhappy tie-ups with other carmakers, including Mitsubishi, Hyundai and Chrysler, is said to be cooler on the idea of taking an equity stake in Renault. However, it urgently needs a partner for small cars, where it struggles to be profitable because of small scale and high variable costs.

“Daimler realises it needs Renault’s help with small cars, but initially wanted a simple licensing or joint venture agreement,” Sanford Bernstein analyst Max Warburton said in a research note on Monday that revealed the two companies were talking. “However, Ghosn is demanding more.”

One of the people involved in the talks said the two companies were also discussing working together in light trucks.

While Daimler’s credit ratings are investment grade, Renault’s are sub-investment or “junk” status.

Analysts expressed scepticism on Monday about the prospects of the talks succeeding.

“Given Renault’s cross-shareholding with Nissan, it would be quite difficult to integrate a third large manufacturer like this one,” said Emmanuel Bulle, senior director in the corporate group with Fitch Ratings.

Daimler held inconclusive talks last year on a possible stake swap with BMW.

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