It seems like the rumor is actually not a rumor anymore. BMW and Mercedes are really going to work together. They're looking at cooperating on engines, but they could also be open to developing assemblies like "axles, steering gear or drive systems."
The main reason for this: cutting costs.
Back in October, we heard the rumor that Mercedes might borrow the engine found in the Mini's for their B-class that will come out sometimes in 2011. So, there is definitely a sign of future collaborations.
Time we'll tell in what form and shape this collaboration will be, but we're hoping for the best.