Nissan Motor Co. Ltd. and Daimler AG will build engines together in the U.S. from 2014 in an efficiency measure that marks the biggest undertaking outside Europe for the auto makers' two-year strategic partnership.
The Japanese and German companies said on Sunday they would build four-cylinder gasoline engines together at the Nissan's plant in Decherd, Tenn., from 2014.
The engines will be used in Daimler's Mercedes-Benz C-class and Nissan's Infiniti premium marque. The plant will have the capacity to build up to 250,000 engines a year.
It will be the first time Mercedes has made engines in North America, and the move comes amid intensifying competition in the U.S. premium car market, the largest in the world.
Rival German luxury marque BMW AG outsold Mercedes in the U.S. for the first time in 2011, data published last week showed.
The announcement comes on the eve of the North American International Auto Show in Detroit, held this year against the backdrop of a resurgent U.S. car market, where premium auto makers are reaping rich rewards.
Daimler and Nissan said the Tennessee plant's strategic location and logistics links would ensure a direct supply of engines from 2014 for Mercedes' C-Class mid-size car, which the German car maker builds at its plant in Tuscaloosa, Ala. It currently uses German-built engines in its U.S.-made cars.
BMW, which makes its X3 and X5 models at a plant in South Carolina, imports the engines from Germany and Austria.
By extending Daimler's co-operation with Nissan and its French alliance partner Renault SA, "We can realize near-market engine production in the NAFTA region on attractive economic terms," Dieter Zetsche, the German company's chief executive, said on Sunday. "Thus we are systematically broadening our manufacturing footprint in this important growth market."
The engines project will also provide a cost-cutting fillip to Infiniti, which makes the bulk of its cars in Japan, but has its biggest sales in the U.S. Like all its Japanese rivals, Nissan has been hit by the soaring yen.
Carlos Ghosn, Nissan and Renault's CEO, said that the engine project would reduce the Japanese car maker's exposure to foreign exchange rates, and the deal represented a "win-win for the [Renault-Nissan]alliance and Daimler."
Nissan has made engines at the Tennessee plant since 1997, and supplies its own brand and Infiniti vehicles with four-, six-, and eight-cylinder engines. The factory made more than 580,000 engines last year.
The joint project marks a further expansion of ties between Renault and Nissan – which have been joined in a close alliance since 1999 – and Daimler, which joined them in a looser partnership in April, 2010, that saw the Franco-Japanese and German groups take 3 per cent mutual equity stakes and agree to collaborate on small cars, engines, and commercial vehicles.
Competing car makers often collaborate in areas where they can pool costs without sacrificing market share, such as engine development.
Renault/ Nissan and Daimler have outlined plans to co-operate on Renault's next-generation Twingo small car and four-seat versions of Daimler's Smart car, due to launch in early 2014.
Renault and Nissan are supplying Daimler with three-cylinder gasoline engines to be used in the cars and four-cylinder diesel engines to be used in a new city van being developed by the partnered car makers for Mercedes, and in the German brand's next generation of compact cars.
Daimler will also supply Nissan and Infiniti with four- and six-cylinder diesel engines and automatic transmissions.