Fiat propose mergers with Renault to create world's 3rd-largest automaker

A combined Renault and Fiat Chrysler would become the third-largest automaker in the world by sales, behind Volkswagen and Toyota. PHOTO: EPA-EFE

NEW YORK (NYTIMES) - Fiat Chrysler said on Monday (May 27) that it proposed a merger with its French rival Renault, forming a global partnership aimed at improving their chances of surviving the coming perilous and costly shift to electric and self-driving cars.

If the deal is consummated, the new company would displace General Motors as the third-largest car company in the world, behind Volkswagen and Toyota.

The companies confirmed reports over the weekend that they were in talks about cooperating. But a full-blown merger goes well beyond what was expected a few days ago and illustrates the urgency that automakers feel to find partners.

There is a consensus among industry executives and analysts that carmakers must link up to share the cost of a transition away from internal combustion engines to avoid being run over by fast-moving tech industry challengers like Tesla or Uber.

Still, the lesson from past auto mergers is that they often founder on clashing corporate cultures or turf battles and that predictions of the possible benefits prove overly optimistic. That was the case with Chrysler's ill-fated merger with Daimler in the late 1990s.

This deal will be particularly tricky because it will inevitably draw the attention of political leaders in Italy and France, who will fight to preserve as many jobs as possible. The French government is Renault's largest shareholder.

The companies said that their partnership would not result in job losses. Yet it is hard to see how Fiat and Renault can avoid job cuts when their factories are operating below capacity and the European auto industry is suffering a downturn.

Substantial savings are possible if the companies jointly purchase parts and share the cost of research and development. But those savings alone would not be enough to stay competitive over the long term with companies like Toyota that are much more efficient.

One unanswered question was how the proposed merger would fit in with Renault's partnership with Nissan and Mitsubishi, known as the Renault Nissan Alliance.

Renault said it hoped that Fiat would join the alliance. If so, the combined entity would be by far the largest carmaker in the world, with a major presence in virtually every corner of the planet.

Join ST's Telegram channel and get the latest breaking news delivered to you.