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Newly Divorced Mercedes Talking with Fiat

Fiat CEO Sergio Marchionne

Alliances have become the auto industry’s holy grail, following a slew of failed takeovers. Even Mercedes, fresh from its divorce with Chrysler, is on the prowl. Fiat Chief Executive Sergio Marchionne confirmed today that he is talking with Mercedes about a possible cooperation, among others.

Mercedes has said it is seeking alliances, but hasn’t mentioned the Italian automaker. Logically, Mercedes needs to team up with someone in small cars. Peugeot, Citroen and Toyota teamed up to produce micro-cars together in Europe, and the new Ford Ka will share a platform and production line with the Fiat 500 in Poland. Mercedes smaller models, the A-Class and B-Class, do not share a platform or parts with the rest of the Mercedes lineup, and therefore suffer a high cost base.

The Mercedes-Fiat talks come seven years after then Daimler-Benz

sought to take a major stake in Fiat Auto, losing out to General Motors. It’s unlikely a Daimler-Fiat tie-up would have fared any better than the GM-Fiat link, which included a put option for GM to takeover Fiat — and was terminated in 2005 after five years at a cost of $2.0 billion to GM. This time, if a deal comes to pass, Mercedes and Fiat are likely to be smarter about the scope and expectations of any collaboration.

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