They’re nice engines, and Aston has updated them since parting ways with Ford, but they’re not really competitive with the latest high-tech offerings from Ferrari and others. (They’re arguably not even competitive with the engines that General Motors Company (NYSE:GM) has been putting in its Chevy Corvettes lately.)
Aston’s deal with Ford is expected to expire this year. And Aston, which once upon a time built its own engines by hand at great expense, isn’t equipped to build — much less to design — a competitive modern high-performance engine that can comply with global emissions and safety regulations.
That’s why Aston Martin needs Mercedes and AMG: It urgently needs new engines, and help developing new models.
But what does Daimler AG (USA) (OTCBB:DDAIF) get out of this?
A marketing coup for Mercedes, and maybe more
Mercedes-AMG — which car enthusiasts usually just call AMG — was once an independent company that souped up Mercedes-Benz sedans, but nowadays it’s the part of Mercedes that develops limited-run, high-performance models. It’s roughly comparable to the “M” division at Bayerische Motoren Werke AG (FRA:BMW).
What AMG gets out of this is a little bit of scale, and a little bit of prestige. Aston sells a few thousand cars a year, mostly to wealthy auto enthusiasts; having it known that those cars are powered by special engines cooked up for Aston by Mercedes won’t hurt Mercedes’ reputation with wealthy buyers one bit.
As part of the deal, Daimler AG (USA) (OTCBB:DDAIF) will get an ownership stake in Aston, up to 5% as the deal progresses. These are said to be non-voting shares, but it’s possible — this wasn’t announced — that there’s an option for Daimler AG (USA) (OTCBB:DDAIF) to buy more (or even all) of Aston at some point down the road.
A good deal all around
It’s looks like a good deal all around. Aston urgently needs a partner, and AMG, which has the technical savvy Aston needs along with the brand prestige that Aston’s customers will want, seems like a fine choice.
For Daimler, it’s the kind of deal that could yield some big marketing benefits at relatively small expense. And for car nerds around the world, it’s going to be very interesting to see what these two old companies cook up together.
The article Can Mercedes-Benz Pump Up Aston Martin? originally appeared on Fool.com is written by John Rosevear.
Fool contributor John Rosevear owns shares of Ford and General Motors — and in younger, crazier days, he had an old Aston Martin in his garage. You can follow him on Twitter at @jrosevear. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford.
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