As we reported several weeks ago BMW and Daimler (Mercedes Benz) continue to discuss a variety of joint ventures.

The talks are more for cost savings and economies of scale than anything else. R&D, purchasing from suppliers would all benefit from a larger scale operation. This small scale has been a strong point and a downfall for both manufacturers, they tend to develop (along with suppliers) breakthrough technologies but have difficulties selling on a large enough scale to make profit margins great enough for investors and the overall health of the company.

BMW has seen a drop in its profit margins and Daimler recently lost a lot in the Chrysler fiasco so both can benefit from sharing in development costs and greater scale in purchasing. What remains to be seen is how deep this relationship will go and how it will effect future models, especially in green technologies.

Daimler, BMW Discuss
Linkup on Components
May 19, 2008; Page B1 Wall Street Journal
BMW AG and Daimler AG ‘s Mercedes-Benz Cars division are in talks to explore teaming up in developing, producing and purchasing car components, according to people familiar with the matter.

The move marks a recognition by Germany ‘s archrival luxury car makers that they may need bigger economies of scale to bolster profits.

Executives and engineers from the car divisions of BMW and Daimler “from the top, right down to the middle management ” are discussing how the companies could jointly buy car parts, including seat frames and air-conditioning modules, said one person familiar with the talks.

The two sides are also exploring possible cooperation, on a project-by-project basis, in developing and producing components, including engines, according to another person familiar with the matter.

People familiar with the talks said the companies aren ‘t under any short-term pressure to reach agreements.

The shift in strategy responds to difficulties the two midsize German auto makers face in maintaining their profit levels, now among the highest in the industry, in the face of a struggling U.S. economy, a strong euro, the rising price of raw materials such as steel, and growing technological demands created by new fuel-efficiency and emissions rules.

Spokesmen for both Daimler and BMW said the two companies are exploring further cooperation on components, but declined to reveal specifics.

Wall Street Journal