DaimlerChrysler links with Mitsubishi to form car giant

Daimlerchrysler and Mitsubishi are to develop a new small car for Europe after formally agreeing yesterday to join forces to create the world's third biggest car maker.

The German-American group is paying 2.1bn euros (£1.3bn) to take a controlling minority stake of 34 per cent in the heavily-indebted Mitsubishi. DaimlerChrysler will also have three seats on the 10-strong board of the Japanese firm giving it power of veto over strategic decisions. However, the deal does not include Mitsubishi's truck division.

The agreement, signed a year to the day after Renault took a controlling 37 per cent in Nissan, was described as a "milestone" for DaimlerChrsyler's Asian strategy by its chairman, Jürgen Schrempp.

The combined group will have sales of 6.5 million cars, enabling it to leapfrog Toyota and Volkswagen to become the world's third biggest car producer after General Motors and Ford of the US.

The new small car will be built in the Netherlands by Nedcar, the joint venture company owned 50:50 by Mitsubishi and Volvo. DaimlerChrysler is acquiring Volvo's stake following the sale of the Swedish car maker to Ford.

The new model will be based on a common platform and will incorporate Mitsubishi's gasoline direct injection technology which produces low-emission, fuel-efficient engines.

For DaimlerChrysler, the agreement marks an important step in its drive to generate a quarter of group revenues from Asian markets. At present the figure is less than 5 per cent.

Mitsubshi has an extensive distribution network throughout Asia and a 26 per cent market share in the fast-growing countries of the Asean bloc. DaimlerChrysler and Mitsubishi together will have a combined market share of 11 per cent in Japan and 9 per cent in the rest of the Asia Pacific region.

The two companies also aim to achieve significant cost savings by co-operating in development and design, purchasing and production across their model ranges.

Although the alliance was generally welcomed by industry analysts, concerns remain about Mitsubishi's level of debts. The company has borrowings of £10bn.