Fiat Chrysler Seeks Merger With Renault To Weather Gathering Storm

Analysis

While many of us were grilling hotdogs and enjoying the Memorial Day Holiday, Fiat Chrysler Automobile’s board was submitting a proposal for merger with the French automaker, Renault. 

Renault’s board is considering the details within and will respond by next week.  If accepted, the combined automaker would become the third largest in the world, behind Volkswagen and Toyota, but ahead of General Motors and Hyundai/Kia.  Given the relative success of FCA since its formation 10 years ago, some may wonder why they would want another partner. 

Put simply, there’s a storm brewing.  The global auto industry is beginning a prolonged upheaval that will see the mass electrification of our vehicles while adopting sophisticated safety systems, automated driving functions, and morphed shapes from cars to crossovers. 

The last time anything close to this occurred was during the 1970s when vehicles were drastically downsized to meet federal fuel economy standards while simultaneously adopting immense emissions and safety standards.  That storm overwhelmed automakers, driving the domestics nearly to bankruptcy while delivering low-quality products. 

That cannot occur again, especially given FCA’s manufacturing footprint in Indiana and the surrounding states.  Transmissions are built in Kokomo and Tipton, but critical vehicles from Jeep and Ram are built in Illinois, Michigan, and Ohio. 

Let’s break it down.

Big digits

The proposal is for a 50-50 merger between FCA and Renault, creating an automaker with a combined market value of $36.5 billion (as of May 24, 2019), 8.7 million vehicle sales during 2018, and expected savings of $5.6 billion annually through technology and platform sharing.

Global footprint

Size matters, and only the largest are likely to prosper in the coming era.  Volkswagen, Toyota, General Motors, and Hyundai/Kia are well positioned to succeed.  Both Renault and FCA alone lack the size to fully compete, but they are complementary.  Renault is strong in Europe, but non-existent in North America, while FCA packs a punch here with its array of brands. 

Leveraging strengths

There’s further synergy with vehicle offerings.  Renault is a leader in compact cars and electric vehicle technology while FCA has the red hot Jeep brand plus Ram, which has the second best-selling pickup behind Ford.  Nobody does muscle cars like Dodge.  Chrysler virtually invented the mini-van.  Small cars sell like moldy cheese in the U.S., but Renault has a range of efficient crossovers that Americans would appreciate. 

Brand portfolio

FCA is a leader in muscle cars and mini-vans with Chrysler and Dodge.  The Fiat side of the family adds Fiat, Alfa Romeo, and Maserati to offer efficient compacts and renowned luxury.  Beyond Renault’s car-based banner brand, the automaker also sells the value-priced Dacia and Lada makes globally.  Renault is currently in a global alliance with Nissan and Mitsubishi, which may or may not be part of any future merger.

Keeping jobs

Companies often merge to combine operations and shed labor, but that’s not likely to happen here.  Renault builds nothing in the U.S. and products do not overlap.  If anything, the group would provide opportunities to build additional vehicles domestically and put the company on a stronger financial position into the future.

There are many obvious benefits, but much could also go wrong.  Combining an automaker with strong nationalistic instincts borne from American, French, and Italian cultures (not to mention Japanese Nissan and Mitsubishi) will be immensely challenging.  Jobs are already being held up as a concern by the French labor movement.  But, given FCA is behind in EV development, it’s hard to imagine how they would be worse off together.

All we can do now is wait to see what Renault’s board thinks of the grand plan.  We’ll find out soon.