Auto giants Fiat Chrysler and Renault are set to join forces in a groundbreaking merger.
The automotive industry is abuzz with the news of a potential merger between Renault and Fiat Chrysler, a move that could create the world's third-largest automaker, selling 8.7 million vehicles annually.
This joint Dutch-based company, with both partners holding 50% each, promises significant cost savings and economies of scale. According to previous mergers, like the successful Fiat Chrysler-PSA union that formed Stellantis, annual cost savings could amount to around €3.7 billion (approximately US$4.22 billion). This scale would improve financial viability in an industry climate marked by stagnating European car sales and the need for heavy investment in EV technology.
However, the road to this merger is not without its challenges. Political resistance, particularly from the French government, and concerns from Renault's alliance partner, Nissan, have been the primary obstacles. In fact, these issues led to the collapse of the deal in 2019.
In addition to these political and alliance concerns, the broader automotive consolidation landscape presents its own set of challenges. Intense competition in global markets, especially from Chinese automakers with cheaper EV models, trade frictions limiting access to key markets, and a technology gap in electric vehicles pose significant hurdles.
Despite these challenges, the benefits of such a merger are clear. The potential for improved competitiveness against global rivals, especially in the EV space and markets like the U.S. and China, make the merger an appealing prospect. The merger could also strengthen the position of the Renault Group in the industry.
The merger, if successful, would also provide more funds for electric mobility investments. Fiat Chrysler and Renault expect to reduce their annual costs by five billion euros after a merger, with Fiat shareholders also set to receive a special dividend of 2.5 billion euros.
However, the merger is not without its detractors. Labor unions, particularly in Italy, are expected to resist the merger due to potential job losses. Italian Deputy Prime Minister Matteo Salvini, on the other hand, sees the merger as potentially beneficial for Italy, with job retention being crucial.
The alliance with Nissan, which includes the Japanese automaker Mitsubishi, makes a merger even more challenging. The French state, Renault's largest shareholder, has reacted positively but cautiously.
As the industry faces increasing pressure to seek cooperation and mergers due to stricter climate regulations, the proposed Renault-Fiat Chrysler merger, while promising, is unlikely to happen without challenges. Analyst Frank Schwope of NordLB has stated that the merger attempt is unlikely to materialise without hurdles.
Bringing together French, Italian, Japanese, and American interests on the board of a Dutch company would require a lot of imagination, according to Arndt Ellinghorst of investment advisor Evercore ISI. The merger, if it does happen, could reshape the automotive landscape and set a precedent for future mergers in the industry.
References:
- BBC News
- The Guardian
- Reuters
- Bloomberg
- Stellantis
The merger between Renault and Fiat Chrysler, if successful, could lead to significant financial benefits, as annual cost savings could reach €3.7 billion (approximately US$4.22 billion), improving their financial viability in the evolving automotive industry. However, the merger faces challenges, including political resistance from France and concerns from Renault's alliance partner, Nissan, and competition from global markets, particularly China and its cheaper EV models.
