Today's tie-up between Mercedes-Benz and Renault-Nissan is a something of surprise. After all, although BMW's divorce from the Rover Group is better known in the UK, Daimler's 1998 merger with Chrysler, and Chrysler's global alliance with Mitsubishi, were both complete disasters.

Ideally, after such a financial hammering, a manufacturing giant such as Daimler would be capable of building a future as an independent maker of premium cars, but it faced two insurmountable hurdles. The first, it seems, was cost-effectively building small capacity engines, and the second keeping Smart in business.

Daimler-Renault deal confirmed

Both BMW and Mercedes have been pushed into building smaller front-drive vehicles, partly because of the pressure brought by EU CO2 regulations.

Mercedes' problem was that decisions taken in the early 1990s over its small car strategy have played out very badly. The huge investment in the A-class, with its unique sandwich platform and slanted drivetrain, proved a fiscal dead end.

14 years of the A- and B-class have resulted in huge losses and virtually no technological gain. The new-generation Mercedes small cars will owe nothing to their predecessors.

It's a similar tale for the Smart. The unique rear-engined Fortwo platform has been massively expensive to build, as have the car's tiny three-cylinder motors.

Although the Smart has sold in creditable numbers for a two-seater, it has delivered heavy losses for Mercedes over its lifespan. Attempts to expand the range were short-lived.

And now Smart sales are down to around 3500 per month, falling over 20 percent from the first quarter of 2009. However, the Smart brand is well-recognized and has great potential.

So Mercedes needs to build Smart into a proper full-line global brand and it also needs a partner for the small capacity engines destined for the new-generation of small Mercedes front-drive cars. Enter the Renault-Nissan alliance.

However, the Mercedes brand has been very clearly and cleverly protected here from a direct association with the mass-market Nissan and Renault brands - something which could prove vital if Mercedes' new small cars are to be held in high regard by the public.

This industrial co-operation will see a new-generation rear-engined Smart platform, which will underpin both two- and four-seat models from Renault and Mercedes.

Expect, incidentally, the return of the Renault Dauphine nameplate. Launched in 1956, it was a successful and pretty rear-engined small car.

Nissan could also join the project. Its Suzuki-sourced Pixo may not be replaced now Suzuki is closely affiliated with the VW stable.

The small petrol and diesel engines designed by Mercedes for the new A- and B-class models will probably be made by Renault for use by both companies.

And if the new A-class platform is shared, it could even become the basis of a small premium Infiniti model. Infiniti could also get bigger engines and hybrid tech from Mercedes.

It looks like a very neat solution. Lots of shared volume, but the Mercedes brand remains independent of its new mass-market partners. Smart survives, happily partnered with Renault. And any unique Mercedes engineering could only ever find its way into upmarket Infiniti models.

On paper, this looks very clever. But then so do most mergers. The biggest hurdle that remains for Daimler may be keeping the Smart brand and dealer network alive for another three years, until the new models arrive.