Daimler’s Mercedes-Benz and Nissan’s Infiniti plan to pool development of compact cars to cut costs, expand the German carmaker’s North American production and broaden the Infiniti lineup, people familiar with the matter said.The outline deal, which reinforces Daimler’s relationship with the Renault-Nissan alliance, will see Nissan build the next-generation Mercedes GLA SUV and related models in Mexico alongside all-new cars for its own Infiniti brand, said the sources, who asked not to be identified.

The plans are due to be presented to the Daimler board for approval as soon as April, the sources said, with the first jointly manufactured vehicles expected in late 2017.

Daimler and Nissan have said they are looking to increase cooperation in smaller premium cars, but neither carmaker would confirm the Mexico production plan.

The companies have yet to reach a “joint formal decision”, Infiniti CEO Johan de Nysschen said in an interview at the Geneva motor show. “But Mexico does have a lot going for it,” he added, including tariff-free exports to the U.S. and Europe.

Mercedes, Nissan and alliance partner Renault have shared engines, plants and vehicle architectures for small cars and vans since Daimler CEO Dieter Zetsche and Renault-Nissan boss Carlos Ghosn announced a broad-based partnership in 2010, underpinned by token reciprocal shareholdings.

The latest agreement will help Infiniti to fill a big gap at the bottom end of its model range with a new SUV, sedan and coupe built with the same parts and architecture as successors to the Mercedes A and B class, GLA and CLA, the sources said.

In return, Daimler gets a first North American production site for its front-wheel drive “MFA” architecture, development savings and economies of scale – in a vehicle category where it has struggled in the past with low profitability.

Such a deal could make good sense for both partners, said Ronald Harbour, an automotive consultant with Oliver Wyman. “For Mercedes it would allow them to get into that market without having to invest massive capital.”

The new Mercedes and Infiniti models will be built at Nissan’s Aguacalientes 2 plant northeast of Guadalajara, opened in November with an initial production capacity of 175,000 vehicles, the sources said.

The initiative will cut the cost by about a quarter compared with going it alone, two of the sources said. In a sign of deepening cooperation, the new investments will be split evenly – despite the higher production volumes expected for Mercedes.

“Some people argue that we should [negotiate] with Daimler because they will sell more cars on the platform,” one Renault-Nissan executive said. “But that’s what gets in the way of successful alliances.”

To build the new models in China, their most important growth market, both carmakers would have to establish separate assembly lines with their joint venture partners Dongfeng and Beijing Auto according to the same sources.

“It’s a bit more complex in China,” one said. “But you still get all the savings from sharing parts and supply networks.”