Ghosn-Zetsche bromance key to Nissan-Mercedes automaking alliance E-mail Tweet Facebook Google Plus Linkedin Share icons by Heather Muse @FortuneMagazine June 30, 2014, 11:53 AM EDT In the early 1990s, a German executive running Daimler’s U.S. truck operations happened to meet a French executive running Michelin’s U.S. tire operations in South Carolina. The two were simpatico. Acquaintance blossomed into camaraderie. Friday, they announced a joint venture between the Renault Nissan Alliance and Daimler AG to build luxury sedans in Mexico starting in 2017. Dieter Zetsche, Daimler’s chief executive officer, used to run Freightliner; Carlos Ghosn, the former Michelin chief in the U.S., now leads Renault and Nissan. Collectively, the automakers have decided to operate a new assembly plant in Aguascalientes, where Nissan already builds vehicles for North America. The $1.4 billion investment will cover an assembly plant rated at 300,000 cars annually on two assembly lines. The models to emerge from the new plant will be small, front-wheel-drive luxury cars, branded as Mercedes-Benz and as Infiniti. “Joint development of compact premium vehicles and joint production in Aguascalientes together represent one of the largest projects between the Renault-Nissan Alliance and Daimler,” Ghosn said. “It also shows how our collaboration, which began in Europe, has become global in scope.” Automakers are exploring myriad types of cooperation to increase scale and share costs, as larger enterprises like Volkswagen, Toyota, and General Motors GM press the advantage of their large size across global markets. Daimler acquired Chrysler in 1998 in a merger that failed, with Chrysler eventually going bankrupt and joining forces with Fiat. Renault, by contrast, undertook a financial rescue of Nissan in 1999 and quickly determined to create an alliance—including exchange of equity—while preserving the independence of both companies. As such, the two automakers cooperated jointly only on projects that made sense to both, though lately Ghosn is pushing the two closer. Daimler, while historically protective of its elite Mercedes-Benz brand, began cooperating with Renault Nissan in 2010. The alliance began slowly and cautiously, steadily tackling more ambitious projects. Shortly prior to the Mexico announcement, Daimler and Nissan disclosed that Nissan will manufacture 2.0-liter engines for Mercedes-Benz C-class models at its Decherd, Tennessee factory. Renault has helped Daimler with its Smart small cars by developing a new version, and manufacturing it, alongside its Twingo, which is old in Europe. Gaining access to Mercedes-Benz technology for the mechanical and electronic underpinning of new Infiniti models represents a big potential win for Nissan. Nissan has struggled since the late 1980s to elevate Infiniti luxury models among top tier brands that include Mercedes, Audi, BMW and Lexus. (BMW, currently the top-selling global luxury brand, is expected within days or weeks to announce a new North American assembly plant as well, quite possibly in Mexico, rather than at its South Carolina complex.) Zetsche has declared a goal for Daimler of regaining global leadership of luxury automotive sales by 2020. Mercedes-Benz is likely to face, along with other obstacles, a resurgent Infiniti. Whether the contradictions of assisting a rival while competing with it becomes too contradictory for Zetsche or some future Daimler chief remains to be seen. In the meantime, the alliance among French, Japanese and German automakers looks like a match made in heaven, not to mention a delectable subject of inquiry for business school students.