By ERIC REGULY
Tuesday, May 28, 2019
ROME -- If there is one big-bang auto merger that has the potential to trigger low-grade panic in the global car industry, the proposed deal between Fiat Chrysler Automobiles NV and Renault SA is it.
Tesla Inc. and Nissan Motor Co. Ltd. would have the most to fear at first.
If the merger goes through, FCA will inherit Renault's world-leading electric-car business, putting pressure on Tesla. At the same time, Renault, with FCA at its side, will be in a far stronger position to dictate the merger terms with Nissan. Renault owns 43 per cent of Nissan and has been trying to buy the whole company. Nissan has resisted, but may lose its negotiating leverage as Renault and FCA, together, emerge as the world's third-biggest auto group.
FCA's effort to find a merger partner that would vault it into the industry's big leagues has never been a secret. Ever since Italy's Fiat formed a partnership with Chrysler in 2009 that would yank the Detroit company out of bankruptcy, its chief executive - Sergio Marchionne, who died last year - sought another deal. He knew that FCA, in spite of the success of the high-margin Jeep and Ram brands, was too small to survive over the long term, all the more so since it lacked the financial heft to reinvent itself as an electric-car maker. He believed that car companies should join forces instead of blowing fortunes merely duplicating products.
Mr. Marchionne banged on the doors of General Motors Co., Volkswagen AG and China's Geely Automobile Holdings Ltd., but got nowhere.
He tried to buy Opel, GM's European division, and that went nowhere, too (Opel was snatched up by Groupe PSA, owner of Peugeot). After his death, Italy's savvy Agnelli family, FCA's biggest shareholder and car builders for more than a century, kept the hunt alive and may have found a willing partner in Renault.
The two companies probably have been circling one another for some time. But rather inconveniently, Carlos Ghosn, the now former boss of both Renault and Nissan, landed in a prison in Japan late last year, charged with a trunk load of financial crimes, all of which he denies. Now that the management of Renault has been sorted out after his resignation, the talks have resumed.
While FCA needs Renault more than Renault needs FCA, the deal, if approved by shareholders and regulators, seems a fine fit for both sides. FCA on Monday outlined the basic structure of the merger. It would come together with 50-50 ownership through a Dutch holding company. Together, FCA and Renault would make about 8.7 million cars, SUVs and trucks a year, putting it in third spot, behind Volkswagen and Toyota, and ahead of GM.
FCA said it and Renault expect no factory closings, and that the "synergies" - cost savings from combining purchasing, vehicle platforms, engineering and other activities - would come to 5-billion ($7.5-billion) a year. It appears that John Elkann, the Agnelli dynasty heir and FCA chairman, would take the same title at the enlarged company; Renault chairman Jean-Dominique Senard would become CEO.
Investors have already blessed the merger. FCA shares in Milan closed up 8 per cent on Monday; in Paris, Renault finished up more than 12 per cent. Based on the trading price, the merger would create a company with a market value of 33-billion - about the same as Ford Motor Co.
There would be some overlap, of course, since Fiat and Renault make rather ordinary urban runabouts, sedans and cross-overs in Europe, with the cute little Fiat 500 the best-known marque.
What Renault lacks in Europe are luxury high-performance brands, which could be supplied by Fiat's Alfa Romeo and Maserati lines.
Through the Agnelli family, Fiat also has ties to Ferrari, which was a Fiat subsidiary until 2015.
For Renault, FCA's biggest attraction is exposure to North America, where Renault is a nonentity. For FCA, Renault's biggest attraction is electrification. Renault, through the Renault-Nissan-Mitsubishi alliance, is the world's biggest maker of electric vehicles - sorry, Tesla. Its family of battery-powered cars includes the Nissan Leaf and the Renault Zoe.
FCA's electric strategy is light years behind the French automakers as well as the German companies such as Volkswagen.
The timing of the proposed merger seems ideal. The French state, which owns 15 per cent of Renault and loves to meddle in its affairs, might have better things to do now that President Emmanuel Macron is busy losing the popularity contest to archrival Marine Le Pen of the Euroskeptic National Rally party. On Sunday, she placed first in France in the European parliamentary elections.
The timing is also ideal because FCA's missing electrification strategy is costing it money. Last month, FCA struck a deal to pay Tesla, whose fleet is entirely electric, as much US$2-billion for European Union carbon emissions credits. Presumably, that cost will decline as Renault's electric cars are counted in FCA's fleet. The missing income will hurt Telsa a lot. Its shares fell again on Monday, taking their loss over the past 12 months to more than 30 per cent.
Nissan is probably not very happy either. It has been resisting Renault's takeover overtures. But with the spectre of FCA and Renault coming together, full ownership of Nissan will fall a few notches on Renault's priority list, meaning Nissan might have trouble negotiating favourable takeover terms. Nissan will have to decide whether to fight for its independence or fully embed itself in the world's third-largest auto company. Given the direction of the auto industry - consolidation, and lots of it - the latter scenario seems the more sensible strategy.
Mr. Marchionne would have approved of the merger of FCA and Renault. Cultural differences and power struggles could sabotage the effort. The merger of Daimler, owner of MercedesBenz, and Chrysler two decades ago proved a colossal flop. But FCA already has plenty of experience in massaging the union of foreign companies - the Chrysler deal saved Fiat from oblivion. Putting FCA and Renault together looks terrific on paper. An unlikely global force of Italians, Americans and French - and possibly Japanese - seems very much like the auto company of the future.