“BMW and Mercedes are continuing to work on joint projects, CAR can reveal. The two premium brands reckon working together might just stave off the threat of the credit crunch, collapsing car sales in key markets and the uncertainty wobbling the very foundations of the motor industry.

But the BMW-Merc collaboration is proving difficult, according to executives in Germany contacted by CAR. Maybe it’s a mutual case of ‘not Invented here’. Maybe it’s what decades of ingrained rivalry does to you. Or a mix of shortsightedness, ignorance and stubborness. Perhaps a combination of the above.

And if they can’t finalise a deal, BMW is likely to hop into bed with a rival manufacturer. Talks with the Fiat group are at an advanced state, too (more of which later).

BMW and Merc are finding it very difficult to agree on even the smallest common denominators. Like engines – be it the new V12 or the new small petrol-fed four. A common V12 looked for a while like a done deal. And for good reason: both brands want it, Rolls-Royce and Maybach need it, and together they could easily afford it.

BMW chairman Norbert Reithofer is in favour of collaboration, while his counterpart at Daimler, Dieter Zetsche, has also given the thumbs-up. But both men cannot change the corporate culture overnight. And that corporate culture forbids sleeping with the enemy.
The reason BMW and Mercedes top brass want to work together is a homegrown rival: the increasingly threatening VW/Audi/Porsche powerhouse, which builds more V10, V12, W12 and W16 engines than the competition combined.
That’s why M-B has thrown M295 into the ring, its brand-new direct-injection stratified-charge twin-turbo all-aluminium V12. But so far, to no avail.

The Swabians urgently need a cheap-to-build four-cylinder petrol engine for their new A-/B-class, which is switching from sensationally clever to emphatically boring.

Merc’s old four-pot was tailormade for that special sandwich layout and the new C-class’s four-cylinder is too big, too heavy and too expensive. As it happens, BMW has got exactly what Mercedes wants: namely a modern turbocharged four with a 1.6- to 2.0-litre displacement range.

It’d be a perfect fit for everything in the lower echelons of Mercedes’ range, stretching through A-, B-, C-, E- and GLK-classes. Combined with production of the 1-series, 3-series, X1/X3, Mini and Project i, it’d make for some bean-counter friendly numbers.
Indeed. For optimum economies of scale, there’s talk of inviting BMW’s R&D affiliate PSA to take part in the evolution process. A surefire recipe for success? Not to BMW. The Bavarians would rather sort out their own two four-cylinder engine projects first,  according to CAR’s sources.

Other collaboration opportunities between Munich and Stuttgart include more pace-setting hybrid modules, more efficient dual-clutch and automatic transmissions, advanced driver assistance systems and a highly flexible small car concept.

BMW is holding joint discussions with Fiat, as well as Daimler. On the table are a new jointly developed series of small engines – including a baby two-cylinder motor – for use in the next generation of small cars, as well as platform sharing. Our senior sources in Turin told us at the Paris motor show that the next Mini could be twinned with the next Grande Punto.

Teaming up with Fiat isn’t as mad as it might seem. Fiat is desperate to find a rear-drive donor to meet its needs for future, more upscale Alfas and is talking to both BMW and Jaguar.

Whichever way it goes, we’ll know in the next few weeks. The deal is likely to be announced in autumn 2008 – so watch this space.

United, BMW and Mercedes could be strong. Divided, they are bound to lose out in just about any numbers game to the Volkswagen group  behemoth.”