Renault, Daimler in Talks on Small Cars

Renault SA (RNSDF), France's second-largest carmaker, said Daimler AG (DAI) is a potential partner for sharing vehicle technology in a linkup that would lower expenses.

"We are in discussions with Daimler about serious opportunities, just as we are with other potential partners," Chief Operating Officer Patrick Pelata told reporters at the French carmaker's headquarters outside Paris. Renault is among "a number" of carmakers that the German company is in talks with on developing small cars, Daimler Chief Executive Officer Dieter Zetsche said today in an interview in Berlin.

Carmakers pool production where possible to match the economies of scale achieved by the likes of Toyota Motor Corp., the world's biggest carmaker, and Volkswagen AG, Europe's biggest. Stuttgart, Germany-based Daimler aims to choose a partner early in 2010 to share its Smart city-car brand and engine production for Mercedes-Benz subcompacts, Zetsche said Dec. 14.

"We are making progress" in discussions with other carmakers on cooperating on small cars, Zetsche said today after a presentation of an electric-powered Smart. "We have contacts with Renault as well."

Renault fell as much as 48 cents, or 1.3 percent, to 35.47 euros and was down 0.1 percent as of 1:37 p.m. in Paris trading. Daimler declined 46 cents, or 1.2 percent, to 36.67 euros on the Frankfurt exchange.

'Asking for Cash'"This is a deal that Daimler needs more than Renault," London-based Sanford C. Bernstein analyst Max Warburton said. "If I were Renault, I'd be asking for cash because they already have the scale and low-cost expertise that Daimler doesn't," said Warburton, who has "outperform" recommendations on both carmakers. "If you put a Mercedes engineer in charge of a small car, it might be very good, but it will come in over-budget."

Bayerische Motoren Werke AG, the world's largest luxury-car manufacturer, is working with PSA Peugeot Citroen on engines for its Mini small cars and is building a factory with Brilliance China Automotive Holdings Ltd. Volkswagen agreed on Dec. 9 to buy a stake in Suzuki Motor Corp. to pursue energy-efficient small cars. Paris-based Peugeot is weighing an investment in Tokyo-based Mitsubishi Motors Corp.

Renault is open to new partnerships to share development and production of vehicles, engines and transmissions, Pelata said today.

The French carmaker shares parts and some vehicle development with 44 percent-owned Japanese affiliate Nissan Motor Co. Larger domestic rival Peugeot jointly manufactures small cars, commercial vans and four-wheel drives with Toyota, Fiat SpA and Mitsubishi Motors.

"There are a lot of discussions among carmakers at the moment," Pelata said. Full-year revenue Renault "should be" 17 percent to 18 percent lower, the executive said. The expected decline is in comparison to 2007, when Renault posted revenue of 40.6 billion euros ($58 billion), spokeswoman Caroline de Gezelle said later by telephone.

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