Just Like Romeo and Juliet

Politics and necessity make for strange bedfellows.

Consider the case of German auto makers Daimler and BMW, onetime sworn enemies that now are toying with the idea of collaborating on small engines to be shared by Daimler’s entry-level Mercedes A- and B-Class cars and BMW’s Mini beginning about 2011.

A decision on a technical tie-up between the two is expected early next year and would mark a startling reversal from a decade ago, when Daimler and BMW were forced into an unplanned partnership and couldn’t find a way out fast enough.

That all came about because, prior to the 1998 marriage of Daimler and Chrysler, BMW had committed to a 7-year tie-up with Chrysler to share 4-cyl. engines.

Production was set up in Brazil under a joint venture called Tritec Motors, with most of the engines earmarked for Mini and the remainder to be used in Chrysler’s Neon small car, primarily for export to Europe and other markets outside the U.S.

But from the moment Daimler entered the picture with Chrysler, BMW began looking for the exit.

“When it was Chrysler that was one thing,” a high-ranking BMW executive told Ward’s in mid-2002 after the auto maker served notice it would not extend the Tritec deal beyond its 2007 expiration. “Now it is DaimlerChrysler, and that is another.”

So what’s bringing these onetime auto industry Montagues and Capulets together?

Experience, for one. Some of the natural-born rivalry between the two may have been eroded as a result of their work together with General Motors to develop a hybrid-electric vehicle powertrain. The three companies decided to pool their engineering resources back in late 2004 and early 2005 after discovering at a technical symposium they all were headed down the same path in developing a hybrid transmission for large cars and trucks.

The so-called 2-mode hybrid system will roll out over the next few months in GM and Chrysler SUVs and pickups. And although no applications have been announced yet, the technology also is expected to be applied to Mercedes and BMW vehicles.

But while that may have broken down the barriers, what’s really pushing the two auto makers closer together are ever toughening emissions and fuel-economy laws worldwide that are severely straining capital and engineering resources.

Powertrain development is expensive – typically $500 million and up – and time-consuming. Many auto makers are finding it difficult to foot the entire bill, particularly when a smorgasbord of technology is being demanded from global markets – including new, innovative gasoline engines of all sizes, hybrids, diesels, fuel cells and flex-fuel powertrains.

It also is more cost-effective to produce in high volume, giving suppliers bigger economies of scale to cover their costs and allowing the partnering auto makers to share the expense of a single manufacturing plant.

U.K. consulting firm Knibb, Gormezano and Partners projects shared-engine programs worldwide will account for 15% of production in 2010, up from 12% in 2006.

Neither Daimler nor BMW produce in big numbers. But their nearly identical product lineups may mean there’s broad opportunity to share key components such as engines and achieve the kind of volume-related cost savings neither can generate alone.

For now, it might be more a marriage of convenience than true love.

But who knows? It also could be the start of a deeper, more lasting relationship