Carmakers Renault, Nissan Motor Co Ltd and Daimler said they would swap stakes and jointly develop cars in a tie up to gain scale and share costs.
Daimler will take 3.1 percent shareholdings in Renault and Nissan, who will both hold 1.55 percent of the German carmaker under the deal, the companies said on Wednesday.
Renault's Nissan stake would slip to 43.2 percent from 44.3 percent. The French government pledged to support the partnership, and said the state would buy 0.55 percent of Renault to maintain its holding at 15.01 percent.
Renault and Daimler have been discussing cooperation plans as carmakers worldwide seek to become more competitive by sharing technology investment costs and gaining scale.
The automobile sector is scrambling to meet tightening emission rules as it emerges from a savage downturn that has highlighted the need for profit-chasing carmakers to boost scale, conquer new markets and increase efficiency.
"Our skills complement each other very well," Daimler Chief Executive Dieter Zetsche said in a statement. "Right away, we are strengthening our competitiveness in the small and compact car segment and are reducing our CO2 footprint."
Daimler, which along with the luxury Mercedes-Benz brand owns struggling Smart, is set to benefit from Clio-maker Renault's small-car expertise, while Renault and Nissan will be able to make use of Daimler's engine know-how.
The three carmakers said they plan to cooperate on electric cars, passenger cars and light commercial vehicles, as well as jointly developing and sharing diesel and gasoline engines.
ENGINE SHARING
"Mercedes needs an ally in small vehicles -- for them it is vital. Renault needs to spread out development costs so the agreement is also important for their profitability," a Paris-based analyst said.
Specifically, the cooperation includes the next-generation Smart fortwo and Renault Twingo models, including electric versions, as well as expanding the smart and Twingo families.
It also includes the sharing and co-development of diesel and gasoline engines from the Renault-Nissan alliance to be used in the new smart and Twingo.
They will also be adapted and modified with Mercedes-Benz characteristics for its new generation of premium compact cars.
The carmakers plan to share gasoline and diesel engines coming from Daimler to Infiniti, the luxury division of Nissan, providing the "opportunity for further collaboration".
They also plan to share a Renault-Nissan diesel engine and transmission for the Mercedes-Benz Vito.
The Renault-Nissan alliance and Daimler added that they would set up a strategic committee to be chaired by alliance Chief Executive Carlos Ghosn and Daimler's Zetsche.
Shares in Renault were 1.2 percent lower at 36.42 euros by 09:38 SA time, while Daimler shares were 0.6 percent firmer at 35.73 euros.
The STOXX Europe 600 auto index was 0.3 percent softer.
"We think that possible synergies from the cooperation with Renault/Nissan are limited and will only be realised mid-term," DZ Bank analyst Michael Punzet wrote in a note, adding that he was sceptical about possible dilution of the Daimler brand. - Reuters