Renault Considering Fiat’s Offer to Merge Into a New Auto Giant – Smart Media Magazine

Renault Considering Fiat’s Offer to Merge Into a New Auto Giant

The French carmaker Renault on Monday said it was considering a proposal by Fiat Chrysler to merge and form a global partnership aimed at improving their chances of surviving the coming perilous and costly shift to electric and self-driving cars.

If the proposal goes forward, the new company would displace General Motors as the third-largest car company in the world, behind Volkswagen and Toyota, and significantly change the balance of power in the global auto industry.

Under Fiat’s proposal, shareholders of both companies would receive 50 percent of the new company. The combination would have a total value on the stock market of $39 billion.

There is a consensus among industry executives and analysts that carmakers must link up to share the cost of a transition from internal combustion engines to avoid being run over by fast-moving tech industry challengers like Tesla or Uber. A Fiat-Renault deal would put pressure on rivals to find partners or be left behind as competitors unite in new mega-alliances.

Investors cheered the merger proposal. Renault shares soared almost 14 percent in Paris trading while Fiat Chrysler shares rose more than 10 percent in Milan.

[Read more: How Fiat Chrysler moved from a laggard to a leader in Detroit]

Still, the lesson from past auto mergers is that they often founder on clashing corporate cultures or turf battles, and that predictions of the possible benefits prove overly optimistic. That was the case with Chrysler’s ill-fated merger with Daimler in the late 1990s.

This deal would be particularly tricky because it will inevitably draw the attention of political leaders in Italy and France, who will fight to preserve as many jobs as possible. The French government is Renault’s largest shareholder.

By purchasing parts together, combining their manufacturing operations and sharing the cost of research and development, the partnership would eventually save 5 billion euros, or $5.6 billion per year, Fiat said. At the same time, Fiat said, the deal would not result in any plant closings.

The merger “would create new opportunities for employees of both companies and for other key stakeholders,” Fiat said.

It is hard to see how Fiat and Renault would be able to avoid job cuts, though, when their factories are operating below capacity and the European auto industry is suffering a downturn.

The French government signaled that it would back Fiat’s plan as long as jobs and industrial sites in France are not compromised. But the powerful CGT labor union at Renault lashed out at the proposal on Monday, saying it gave Fiat the power to favor operations in Italy over France, because the French government would no longer have a representative on the new board. At least 22,000 jobs have been shed at Renault in France since 2005, the CGT added.

“Nothing would prevent the Italian shareholder from favoring its national base,” the union said in a statement, noting that it learned about the talks only through the media. “The CGT considers that there is nothing good to expect from a Renault FCA merger.”

Matteo Salvini, Italy’s deputy prime minister and leader of the country’s League party, greeted the merger proposal. “Fiat Chrysler expanding is good news for Italy,” he said. “I count on it being a brilliant operation that preserves every single job while creating a European car industry giant.”


Fiat Chrysler and Renault each have things to offer to partly address each other’s weaknesses. Renault and Nissan were among the first car companies to build electric vehicles for mass production, whereas Fiat is seen as a laggard. Together, the companies sold 8.7 million vehicles last year, ahead of G.M., which sold 8.4 million.

Fiat Chrysler also offers Renault access to the United States market, where the French have no presence. Their model lineups complement each other fairly well, with Fiat Chrysler strong in SUVs like the Jeep Cherokee as well as the RAM pickup truck line. Renault has a broader palette of passenger cars like the compact Mégane or subcompact Clio.

“Putting FCA and Renault together could make sense,” said Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen in Germany who is a prominent commentator on the car industry.

But neither company is strong in China, which has become the world’s largest car market. And neither is particularly strong in the high end of the car market, the most profitable segment. Fiat’s Alfa Romeo and Maserati brands are well regarded but are minor players in a market dominated by Mercedes-Benz, BMW and Audi.

One unanswered question was how the proposed merger would fit in with Renault’s partnership with Nissan and Mitsubishi, known as the Renault Nissan Alliance. Fiat said the new company would continue to work with Nissan, and that the Japanese company would receive one seat on the 11-person board of directors.

Together, the four companies would be by far the largest carmaker in the world, with sales of 15 million vehicles a year and a major presence in virtually every corner of the planet. But such a monstrous corporation would be complex and even more difficult to manage than the Renault Nissan Alliance has been.

[The Renault Nissan Alliance is threatened by both companies’ fierce pride and rivalry]

The relationship between the French and Japanese has been tense since the arrest of Carlos Ghosn, the head of the alliance, in November on accusations of financial wrongdoing and his eventual ouster. Mr. Ghosn has said he is innocent.

The French have pushed to join Renault and Nissan more closely by putting them under the same holding company, but the Japanese brusquely refused that proposal. Nissan, which makes more cars than Renault, has expressed discontent with French dominance of the partnership and sought more autonomy.

The merger could also create tensions with Nissan in the United States, where the Japanese compete fiercely with Fiat Chrysler in the all-important market for SUVs and pickups. Last year Fiat Chrysler was in fourth place in the United States with 12.6 percent of the market, while Nissan had 8.4 percent.

Nissan and the Japanese government were informed about the merger talks, but appear to have played no significant role.

With Fiat Chrysler on board, the alliance would be tilted more toward Europe. At the same time, the French government would have less sway over the new company than it does over Renault. French government influence has been a sore point for Nissan.

In Europe, the new company would effectively be in a tie with PSA Group, the maker of Peugeot, Citroën and Opel cars, for second place behind Volkswagen. That would put additional pressure on Ford of Europe, which has lost market share and reported a pretax profit margin of less than 1 percent in the first three months of 2019. Ford’s share of the European Union car market is 6.3 percent, compared with 16.8 percent for Fiat and Renault combined.

Under Fiat’s proposal, shareholders of Fiat Chrysler would share a dividend of 2.5 billion euros, or $2.8 billion, that reflects the company’s higher value on the stock market.

The company would be based in the Netherlands, known for its favorable corporate taxation rules. Shares of the new company would be listed on exchanges in Paris, Milan and New York.

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