Nissan to invest big on premium small cars

Daimler AG and Nissan Motor Co are jointly investing $1.36 billion to develop premium small cars and build a factory in Mexico, the companies said on Friday, in a step that deepens cooperation between the Mercedes-Benz and Infiniti brands.

The companies said they will build a plant with an annual production capacity of 300,000 vehicles in Aguascalientes in central Mexico, where Nissan already has a $2 billion manufacturing complex.

The first Infiniti cars will roll out of the new plant in 2017, followed a year later by Mercedes, the companies said, with both brands planning to market those vehicles globally.

The companies did not specify which vehicles would be built in Mexico. But sources told Reuters Infiniti will build three models at the plant including a sedan, a coupe and a compact crossover likely to replace the slightly larger QX50 model. Mercedes-Benz plans to produce at least three corresponding vehicles, including a crossover from new joint vehicle architecture, developed from Daimler's MFA front-wheel-drive platform.

In March, sources said Daimler and Nissan planned to pool development of premium compact cars to cut costs, expand the German carmaker's North American production footprint and broaden the Infiniti lineup.

The 50:50 joint venture in Mexico allows Nissan, which is allied with French automaker Renault, to share components and technology that are already used by Mercedes-Benz. In return, Daimler gets a first North American production site for small vehicles, to supplement its U.S. assembly plant in Vance, Alabama.

The German carmaker has struggled in the past with insufficient demand for its smaller cars, while Nissan's Infiniti brand has yet to establish itself as a significant player in the global premium sector.

Building cars in Mexico allows Mercedes and Hong Kong-based Infiniti to sell cars in the United States while avoiding some of the currency and tariff costs that crimp profits on vehicles imported from overseas. Mexico also offers lower labor rates than Germany, Japan and the United States.

Carlos Ghosn, chief executive of Renault-Nissan, said that "joint development of compact premium vehicles and joint production in Aguascalientes together represent one of the largest projects" between the Renault-Nissan alliance and Daimler.

Asked if Infiniti cars eventually could be built at Mercedes factories in Europe, Ghosn said "there is no need."

Daimler Chief Executive Dieter Zetsche was asked whether he would consider a full-blown merger between the companies and said, "The cooperation is so successful because it is not the result of a merger."

The companies will add almost 5,700 jobs by the time the plant reaches full capacity, expected in 2021, as well as 10,000 jobs at parts suppliers and related enterprises.

Mercedes, Nissan and Renault have shared engines, plants and vehicle underpinnings for small cars since Zetsche and Ghosn forged an alliance in 2010 cemented by token reciprocal shareholdings.

On Wednesday, Infiniti and Daimler began production of four-cylinder engines at a Nissan plant in Tennessee, for use in the Mercedes-Benz C-class and the Infiniti Q50.

(Reporting by Edward Taylor; Additional reporting by Ilona Wissenbach in Frankfurt and Dave Graham and Gabriel Stargardter in Mexico City; Editing by Steve Orlofsky and Tom Brown)