Nissan Motor Company’s luxury car arm, Infiniti, plans to build a compact car based on a small-car platform from Daimler AG’s Mercedes-Benz.

The new model will mark an expansion of the cooperation between Daimler and the Renault-Nissan alliance, Nissan CEO Carlos Ghosn said at the IAA Frankfurt auto show yesterday.

However, he did not comment on reports that the car would be built in Europe, where it will challenge the Audi A3 and BMW 1 series.

Nissan executive vice president, Andy Palmer, said it is “not a sacred cow” that Infiniti cars should only be built in Japan; but he also would not comment on where the car will be built.

Infiniti needs a compact car in Europe to compete with entry-level models from Audi and BMW. Palmer said the compact Infiniti will launch in 2014 – with both gasoline and diesel engines – based largely on the Etherea concept that the brand unveiled at the Geneva auto show in March and is currently being shown again in Frankfurt.

Infiniti's Etherea concept

The compact would likely eventually account for about 40 percent of Infiniti’s European sales, Palmer said.

Earlier, there were unconfirmed reports  that Nissan plans to start building the car in Europe within the next couple of years, making it the first Asian luxury brand to manufacture in the region.

Ghosn said the next generation Infiniti models will be built outside Japan due to the strength of the yen. His remarks were made at a joint press conference with Dieter Zetsche, CEO of Daimler AG.

Zetsche said “there is extremely limited cross consideration” comparing Mercedes and Infiniti brands among buyers shopping for upscale cars.

So far, the companies are cooperating to explore electric versions of the Mercedes Smart car and the Renault Twingo, as well as a small delivery van based on Renault architecture.

Zetsche said the companies’ cooperative efforts are based on practical projects, and thus differ from the previous Daimler-Chrysler alliance.