Aston Martin, the sports car maker popular with James Bond and Royal family, revealed it is entering a technical partnership with Daimler's Mercedes-AMG to produce a new generation V8 engines.
Daimler would take a non-voting 5% stake in the 100-year-old Britain's luxury sports car maker Aston Martin, depending on the progress of the agreement.
"The opportunity to include content from Mercedes-AMG in our next generation sports cars is, clearly, good news," Ian Minards, Aston Martin's product development director, said in a statement.
"This points to a very bright future for the company as it starts its second century in business," he added.
Both the car makers said that, according to the agreement Daimler's Mercedes-AMG, it will supply engines to Aston Martin. It will also receive electronic components from Daimler's Mercedes-Benz unit.
Benefit of the Deal
If the deal is completed, it will strengthen Aston Martin's competiveness against Volkswagen, Bentley, and Porsche. Along with its UK rival Jaguar Land Rover, which has been maximising sales growth since 2008 after being bought by India's top manufacturer Tata Motors, Aston Martin will be able to offer a more direct competing product.
The deal would also replace Aston Martin's current deal agreement with Ford which was the owner of the former sports car maker till 2007.
The move towards the current agreement follows the successful sale of 37.5% stake in Aston Martin, to Italian private equity group Investindustrial for $241m, three months ago.
Aston Martin said that investment by Investindustrial, outbidding India's tractor maker Mahindra and Mahindra for the stake, would help support them over the next five years and help it create "a new product development programme worth more than £500m."
If the partnership becomes successful, Daimler might be interested in increasing its stake in Aston Martin, as the group has many investors who want to sell their holdings and exit from the company.
"Daimler will join the existing shareholders that include Investment DAR, Adeem Investment and Investindustrial," company said in a statement.
Aston Martin, which has been struggling to grow since the economic downfall of 2008, posted 9% fall of profit in 2012.
Last week European Automobiles Association reported that European car sales plunged to its lowest level in 17 years as the ongoing financial crisis and soaring unemployment rates continued to curb vehicle demand.
Aston Martin, which sells about 15% of its vehicles in Asia last year, reported sales of 3,800 cars across all markets. The company is reportedly looking to capture the emerging markets demographic in order to boost its presence.
One of Aston Martin's biggest competitors, Jaguar Land Rover, has reportedly spent $800m over the past five years on marketing and spreading its dealership and presence in China.
The deal is expected to be finalised towards the end of the year and is subject to regulatory approval.