FCA submits merger proposal to Renault [update]

The merger would create the world's third-largest automaker.

The rumors were true: Fiat-Chrysler Automobiles (FCA) confirmed it has submitted a proposal for what it calls a transformative merger to Renault. If the deal goes through, which isn't certain, the 50/50 merger would create the third-largest automaker in the world, with worldwide annual sales in the vicinity of 8.7 million.

FCA published a statement on its corporate website to announce its intent to merge, and explain it has identified several potential areas of collaboration, though it didn't name them. However, it cited the costs of connectivity, electrification, and autonomous driving as the main driving force behind the merger. Achieving economies of scale by joining forces with another automaker is vital.

The statement stressed FCA doesn't believe closing factories will be necessary. Instead, FCA identified economies of scale as the main source of savings. 40 percent of its projected savings would come from joint purchasing, 30 percent from R&D efficiencies, and 20 percent from manufacturing and tooling efficiencies. The two companies would notably reduce the number of vehicle platforms in their portfolio by 20 percent, and the number of engine families by about 30 percent.

The statement calls for the creation of a 50/50 joint-venture that would be based in Holland and listed on the stock market in Italy, Paris, and New York City. Its board would have 11 members; four would be from Renault, four from FCA, one from Nissan, and the rest would be independent.

On paper, the two companies complement each other well. FCA is strong in the United States, and it's a leader in the lucrative truck and SUV segment. Renault is strong in Europe, and it has already made significant investments in electrification.

FCA also noted Nissan and Mitsubishi, Renault's Japanese partners, will be able to benefit from the merger. However, a tie-up would likely have a major impact on the Japanese side of the current Renault-Nissan Alliance. How the revamped structure would work remains to be seen, and Nissan hasn't commented on the news yet. Sources familiar with the talks say the Japanese firm hasn't been involved in the negotations yet, which illustrates how strained its relationship with Renault has become in the wake of former CEO Carlos Ghosn's arrest in November 2018.

Renault confirmed it received what it called a friendly proposal from FCA, discussed it during a board meeting, and announced plans to "study with interest the opportunity of such a business combination." It pledged to keep the public, the press, and investors informed when it decides whether to move forward with the tie-up.

Photo by Ronan Glon.

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