The Volkswagen group includes the likes of Audi, Lamborghini, Seat, Skoda, Bentley, Bugatti and of course Volkswagen. This allows the group to significantly cut costs by conducting joint research and development for use across all its brands.
So far the two German rivals (Mercedes and BMW) have worked together on Mercedes-Benz's A- and B-class models. They are also collaborating with General Motors to develop a two-mode hybrid powertrain for larger passenger vehicles. But future cooperation looks set to go much further.
According to insider sources, the Germans plan to cooperate on powertrains. Both companies realise the economies of scale are more important than ever in the ongoing climate-change debate.
The problem facing today's manufacturers is the inability to pass the higher costs of environmentally-friendly powertrains onto car buyers. We all want green cars, but we don't want to pay more for it. This has left many increasingly looking for joint ventures or cooperation to share costs.
"We've made the realization that we are so well set up that we'll only be able to generate cost advantages with engines and gear boxes," a source inside Mercedes-Benz said.
There are also reports that Mercedes is looking to Japan for a similar deal.