Fiat Chrysler proposes merger with Renault to reshape car industry

Fiat Chrysler has proposed a €32.6bn (£28.3bn) merger with France’s Renault that would create the world’s third-largest carmaker and save billions needed to invest in the race to make electric and autonomous vehicles.

The combined company would produce 8.7m vehicles annually and save €5bn (£4.4bn) a-year by sharing research, purchasing and other activities, according to Fiat Chrysler Automobiles (FCA). The Italian-American firm said the deal would not involve plant closures but did not rule out job cuts.

If completed, the merger would create the world’s third largest carmaker behind Volkswagen, which owns Audi and Seat, and Toyota, which also owns Lexus. General Motors, the owner of the Chevrolet, Buick and Cadillac brands, would fall to fourth in the global rankings.

The joint company would be 50% owned by Fiat Chrysler shareholders and 50% by Renault shareholders.

After a special meeting at its headquarters in the Paris suburb of Boulogne-Billancourt on Monday, Renault said it would “study with interest” Fiat’s “friendly proposal” of a merger.

Shares of both carmakers jumped on reports of a merger, which comes on the back of global pressure for consolidation in the car market prompted partly by the switch to electric vehicles.

The two companies are somewhat complementary: Fiat Chrysler is stronger in the US and SUV markets, while Renault is stronger in Europe and on electric vehicle development.

Fiat’s proposal indicated that Renault’s existing alliance with Japan’s Nissan and Mitsubishi could continue and that the companies would benefit financially from the deal through extra savings.

The Renault-Nissan-Mitsubishi alliance has been troubled since the November arrest of its former boss Carlos Ghosn on financial misconduct charges in Japan. But together, the three companies are the biggest maker of passenger cars in the world.

The French government, which owns 15% of Renault, said it was “favourable” to the idea of a merger with Fiat Chrysler but wanted to study the conditions more carefully, especially in terms of “Renault’s industrial development” and employees’ working conditions.

Such a merger would show “our capacity to respond to European and French sovereignty challenges in a globalised context”, a French government spokesman said. “We need giants to be built in Europe.”

The Italian deputy prime minister, Matteo Salvini, said the proposed merger could be good news for Italy if it helped FCA to grow, but added it was crucial to preserve jobs.

Investors welcomed the idea of a merger, pushing shares in Fiat Chrysler up almost 8% and Renault up 12%.

However, Arndt Ellinghorst, an Evercore ISI analyst, said the complex deal could be tricky to complete. “We now have the French, the Italians, the Japanese and the Americans needing to find consensus on the board of a Dutch company, where the French state stands to lose its special status,” he said. “This requires quite a bit of creativity.”

Nissan’s chief executive, Hiroto Saikawa, would not comment directly on the idea of a Renault-FCA merger but said: “I am always open to exchanging constructive views on strengthening the alliance.”

Fiat Chrysler estimated that Nissan and Mitsubishi would make €1bn in savings a year from the deal, although it was not clear how the Japanese companies would respond to being in an alliance with a much larger partner.

Collaboration between carmakers has become increasingly important in recent years as they seek to build capability in electrical vehicles, internet connectivity and self-driving vehicles. They are also under pressure from regulators, particularly in Europe and China, to develop electric vehicles in order to meet tougher pollution limits.

During an earnings conference call earlier this month, the Fiat Chrysler chief executive, Mike Manley, told shareholders he believed there would be “significant opportunities” in terms of strategic partnerships or alliances in the next two or three years.