Daimler AG (USA) (DDAIF), Ford Motor Company (F): Can Mercedes-Benz Pump Up Aston Martin?

The Aston Martin DB9 is arguably one of the world’s best-looking cars, but its V12 engine, originally designed by Ford Motor Company (NYSE:F) in the 1990s, is getting long in the tooth. Photo credit: Aston Martin.

This past week, German automaker Daimler AG (USA) (OTCBB:DDAIF) announced a new deal with Aston Martin, the tiny British company famous for its line of sleek — and expensive — sports cars.

Under the deal, Daimler AG (USA) (OTCBB:DDAIF)’s Mercedes-AMG unit, which is the high-performance arm of Mercedes-Benz, will work with Aston to develop an all-new line of V8 engines for the next generation of Aston Martin cars.

Mercedes-AMG will also help Aston develop the electronic controls for those new cars, a critical — and expensive — part of making autos nowadays.

So what does this mean for James Bond’s favorite carmaker? And what does it mean for Daimler AG (USA) (OTCBB:DDAIF) and Mercedes?

A deal that Aston needs, badly
It’s pretty clear what this means for Aston: survival.

Since Ford Motor Company (NYSE:F) sold it to a group of private investors in 2007, famed British sports-car maker Aston Martin has had a somewhat rough time.

The economic crisis hit all of the high-end carmakers hard in 2008, but most of Aston’s rivals are owned by major global carmakers, which gave them access to the resources needed to keep their products at the cutting edge. That has cost them: Aston’s sales were down 10% last year, even as other luxury car brands saw sales increase.

But while Ford Motor Company (NYSE:F) set Aston up with a new factory and some great engines a decade ago, the little British firm has had a hard time finding the resources to keep up with rivals such as Fiat S.p.A. (ADR) (OTCMKTS:FIATY)‘s Ferrari and Volkswagen AG (ADR) (OTCMKTS:VLKAY)‘s Lamborghini.

Aston’s recent models have all been visually stunning, and the interior trims have always been some of the nicest in the world — an Aston Martin hallmark. But in terms of performance, the latest Astons are increasingly outclassed by the Ferraris and Lamborghinis that Aston Martin would like to be competing with.

The problem is Aston’s engines, which are a series of V8 and V12 power plants that have their roots in old Ford Motor Company (NYSE:F) designs dating back well over a decade. In fact, Ford Motor Company (NYSE:F) still builds the engines for Aston, in a corner of a giant Ford Motor Company (NYSE:F) engine plant in Germany, under a deal that was signed when Ford Motor Company (NYSE:F) sold Aston.