FCA gears up for merger with French automaker Renault

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Renault Megane Renault

After days of speculation, Fiat Chrysler Automobiles announced yesterday that it has proposed a “transformative merger” with French automaker Renault. Renault responded with a statement indicating that FCA’s “friendly proposal” is being reviewed by the board of directors “with interest.”

FCA chairman John Elkann, whose Agnelli family owns 29 percent of the Italian-American company, would likely chair the new entity, which would combine the Renault, Dacia, and Lada brands with FCA’s Jeep, Chrysler, Alfa Romeo and Fiat. Exor, the Agnellis’ holding company, would be the combined automaker’s largest stockholder.

In the statement, FCA said the merger would save the two companies $5.6 billion a year.

Investors appear to like the deal, which FCA CEO Michael Manley said it would take at least a year to consummate. In early trading Tuesday morning, FCA shares were up 19 percent with Renault stock appreciating 17 percent following the announcement.

It’s not clear how the proposed 50-50 merger would fully affect Renault’s alliances with Nissan and Mitsubishi, but under the proposal, Nissan would get a seat on the new firm’s 11-member board of directors. FCA’s statement said that Nissan and Mitsubishi would derive over a billion dollars in annual cost savings should the deal go through. Renault owns 43.4 percent of Nissan but the Japanese automaker has lately rebuffed efforts to further tighten the alliance. Some observers have suggested that alliance head Carlos Ghosn’s high-profile arrest in Japan for alleged financial crimes was fallout from Nissan’s reluctance to be more closely tied to Renault.

Fiat 500
Fiat 500 FCA

It appears that the Agnellis would like to keep Nissan in the fold. In a statement released to Japan’s Nikkei newspaper, Elkann said, “Our proposed merger with Renault will create the potential to build a global partnership with all three of these great companies during this period of unprecedented transformation in our industry… I have huge respect for Nissan and Mitsubishi, and their products and businesses.”

Together, FCA and Renault would be the third largest automaker in the world, with about 8.7 million vehicles sold annually. Including Nissan and Mitsubishi’s production would vault the merged companies past Volkswagen and Toyota into first place.

Though FCA said that efficiencies allowed by the merger would not include shuttering factories, there are concerns by workers in Italy and France about job security. Most of FCA’s factories in Europe operate at below 50 percent of their capacity. Those concerns are politically complicated by the fact that Renault’s biggest shareholder is the French government, which own 15 percent of Renault. A legislator from Italy’s ruling League political party said that the Italian government might take an equity position in the merged entity to balance France’s interest.

Automotive News reports that the French government supported the deal in principle but would need to review the details. A French official said that France would be “particularly vigilant regarding employment and industrial footprint,” and that the Renault-Nissan alliance should be protected.

What this means for Renault’s viability in the U.S. market is an open question, but there’s no question that the French automaker’s EV and hybrid technologies could position FCA to better compete with Ford and GM here in the U.S. Although with Peugeot planning a U.S. comeback, it would be fascinating to see French automakers once again compete on these shores.

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