Fiat Chrysler Automobiles (FCA), the parent company to American auto brands such as Fiat, Jeep, and Chrysler, recently proposed a merger to French automaker Renault. This proposed merger would create the third largest automobile manufacturer by volume in the world and split shares in the combined company 50-50 between the shareholders at FCA and Renault.
Although officials at FCA and Renault have historically discussed cooperation informally, FCA took matters one step further in proposing a merger on Monday. Although both companies boards have yet to approve the said deal, both sides have expressed that they would be willing to consider the merger. Shares in FCA and Renault were up 13% and 11.5% respectively on Monday.
FCA and Renault both stand to gain efficiency from this merger. According to Rebecca Lindland of RebeccaDrives.com, both FCA and Renault target similar customer groups: consumers looking for “reliable, durable, value-oriented transportation.” Accordingly, both sides have the potential to reach economies of scale in the manufacturing of similar parts. This efficiency is critical in the sale of small cars which are popular in Europe, Latin America, and Asia, but not very profitable. FCA and Renault have predicted savings of approximately USD 5.6 Billion. Additionally, the FCA does the vast majority of its business in North America, while Renault sales occur mostly in Europe. The merger would allow both companies to broaden their access to new markets and sell to a broader variety of customers.
This efficiency would prove especially useful in the race to develop new electric and autonomous vehicles. With the combined innovative power of the two companies, the FCA released a statement that the merged company would be in a position to best capture “the opportunities created by the transformation of the auto industry in areas like connectivity, electrification, and autonomous driving.” FCA also stands to gain access under this merger to EV technology jointly pioneered by Mitsubishi, Nissan and Renault.
To allay union and governmental concerns, Fiat has said that the deal would not result in any plant closures. This is significant because the French government has a stake in Renault and could oppose the merger due to pressure from workers’ unions who feel that the merger would result in layoffs.
The deal complicates Renault’s already contentious alliance with Nissan. Carlos Ghosn, the CEO of Nissan who headed the deal between Nissan and Renault, was charged with financial crimes and imprisoned in Japan for over 2 months. Without Ghosn, the Nissan and Renault relationship has already been under strain. Should FCA and Renault merge, Nissan would see its stake and influence in Renault cut by half. Analysts have questioned if the proposed Renault and FCA merger indicates that the Nissan - Renault alliance will continue to weaken.