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Renault-Nissan and Daimler, which makes the luxury Mercedes-Benz line and new smart small car, also agreed to work on developing technology for new small cars and engines as well as collaborate in making light commercial vehicles.
In an equity exchange Renault-Nissan will take a 3.1 percent stake in Daimler. In turn the German giant will take a 3.1 percent stake in new Renault stock and 3.1 percent of Nissan from its existing shares.
Renault-Nissan and Daimler AG each said they expected to see two billion euros (2.67 billion dollars) added to the bottom line over the first five years of the deal.
The partnership will "complement each other very well," said Daimler chairman Dieter Zetsche in a statement, adding that individual brand identities would not be affected by the agreement.
"We are strengthening our competitiveness in the small and compact car segment and reducing our CO2 footprint - both on a long-term basis," he said.
The firms said they had agreed to develop Renault-Nissan engines to be used in the smart and Renault Twingo, to be adapted and modified with Mercedes-Benz characteristics for new premium compact cars.
The next-generation Renault Twingo, smart fortwo and a new smart four-seater will be engineered using jointly developed architecture and will include an electric version with a launch slated for 2013, the companies said.
The smart plant in Hambach, France, will oversee production of the two-seater while the Renault plant in Novo Mesto, Slovenia, will handle the four-seater.
In addition, Daimler will provide engines to Infiniti, Nissan's luxury division.
"This experience is extremely valuable in today's and even more tomorrow's global auto industry," said Carlos Ghosn, chairman and CEO of Renault-Nissan.
Ghosn and Zetsche will co-chair the committee overseeing the alliance.
The agreement comes as the global auto industry is struggling to overcome a slump caused by the economic downturn and sees tie-ups as firms look to share technology and reduce costs in a bid to overshadow rivals.
German industry experts think that by cooperating with Renault, Daimler could make savings of 600 million euros (800 million dollars) in its development costs.
Despite poor sales for its smart brand of mini-cars, Daimler envisions a turnaround by sharing parts with automakers such as Renault and Nissan that have strength in small vehicles, according to recent Japanese media reports.
Renault, maker of the popular Clio small car, entered into an alliance with Nissan 11 years ago to share parts and open up access to production sites worldwide. The Japanese carmaker is 44.3-percent owned by Renault while Nissan owns 15 percent of Renault.
Nissan, for example, builds Renault Sandero hatchbacks at its plant in South Africa while Renault builds Nissan models in Brazil. The two carmakers have built a joint factory in India.
Prior to Wednesday's announcement, which was made after trade closed at the Tokyo Stock Exchange, Nissan shares had edged 0.36 percent lower.
Renault, Nissan and Daimler had combined sales of 7.22 million vehicles in 2009, trailing the 8.6 million units for the alliance between Volkswagen and Japan's Suzuki and the 7.81 million vehicles sold by Toyota.
Volkswagen, the biggest European car maker, and Suzuki finalised a cross-shareholding operation last year.
dwa/dan
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