FCA – Renault merger: 50:50 merger would create the third largest global OEM

Twenty-one years after Chrysler Corp. succumbed to the “merger of equals” with Germany’s Daimler-Benz AG, its successor, FCA is poised to do it again. Fiat Chrysler Automobiles and Renault are in talks that could result in merging vast swaths of their businesses. The deal would create an automaker with a strong presence across key regions, automotive markets and technologies, generating 5 billion euros ($5.6 billion) in annual savings, FCA said in a statement. Fiat Chrysler Automobiles N.V. delivered a non-binding letter to the Board of Groupe Renault proposing a combination of their respective businesses as a 50/50 merger.

The 50-50 proposition would bring together Italian-owned FCA, which is made profitable by American brands Jeep and Ram. French automaker Renault is in an alliance with Japanese automakers Nissan and Mitsubishi.

FCA wants to create an automotive group where it sees the following could be achieved –

• Combined business to be 50% owned by FCA shareholders and 50% by Groupe Renault shareholders – balanced governance structure and the majority of the Board of Directors is independent.
• The combination would create the 3rd largest global OEM with 8.7m vehicle sales and a strong market presence in key regions and vehicle segments.
• The broad and complementary brand portfolio would provide full market coverage, from luxury to mainstream.
• The combined company would be a world leader in the rapidly changing automotive industry with a strong position in transforming technologies, including electrification and autonomous driving.
• No plant closures as a result of the combination.
• In excess of €5 billion estimated annual run rate synergies incremental to existing Renault-Nissan-Mitsubishi Alliance (Alliance) synergies.
• Strong combined balance sheet allowing for flexible capital allocation and robust dividend policy.
• Significant benefits to the other Alliance partners including ~€1 billion of additional estimated run-rate synergies

This proposal offers the opportunity to create the #3 global automotive company. It also confirms and enhances the value of the existing Alliance and its potential to become even stronger in the future. While there is no certainty that this proposal will result in a transaction, the Board of FCA has strongly supported and approved the proposal which will now be reviewed by the Groupe Renault Board of Directors.

This is a move that illustrates the growing pressure among automakers to consolidate in an environment of increased regulatory force, sales declines and rising costs aimed at bringing next-generation technologies like electric and autonomous cars to market.

So what does this mean for India? It’s too early to comment. Will we see more FCA products come to India? Will there be FCA and Renault cross developed platforms in the future? The merger, if agreed on, will take at least a year to close. We will not see any impact of the merger on India till a year after. But this is a really exciting time to see how automotive giants come together and how such an alliance forms.

Stay tuned as we will get you more information on the same.