According to the news report by MarketWatch, some of the biggest names in the auto industry saw billions wiped off their market value after the auto markets plunged in trading on June 06.
Ford Motor Company dropped by 1% in early after it announced that it would be impacted by a one-time $650-million cost that would be used for the closure of one of its factories in Europe. The auto maker said that it was planning to close its factory in the UK, which manufactured engines. This closure would put 1,700 jobs at risk.
The Ford Bridgend plant, located in Wales, had opened in 1977, and manufactured about 20% of the 2.7 million automobile engines in Britain in 2018. Together with its sister site in Dagenham, in London, England, the Bridgend factory built 1.3 million engines per year. These engines have been exported for fitting into automobiles in the US, Germany and Turkey.
Stuart Rowley, the president of Ford Europe stated that the change in customer demand, disadvantages in cost, as well as a lack of more engine models for Bridgend to make had made the factory economically unsustainable in the long run.
The closure of this plant is only a part of the company’s global cost cutting plan. In May, Ford announced that it was going to cut 10% of its workforce, which amounts to about 7,000 people, by August end. This was a part of the company’s restructuring process whose target is to save $600 million per annum.
The auto market then received news that negotiations between Renault SA and Fiat Chrysler Automobiles NV fell through after the Italian-American car maker accused the French government of interference.
Fiat Chrysler announced that its board of directors had taken its merger proposal off the table post a stakeholder meeting due to France’s political conditions. The board stated that this was a huge barrier to the negotiations. The company stated that it was clear that currently, the political conditions in France were not conducive to such a deal going through successfully.
The reason for this objection on the part of the Italian-American auto maker was because the French government, which owns a 15% stake in Renault, was demanding a guarantee that French workers would not lose their jobs as a result of this merger.
The French government further demanded that a dividend be paid to Renault’s shareholders, and that the merger be delayed until its ally Nissan Motor Co. backed the deal. The Japanese automobile manufacturer also owns a 15% stake in the French company via a cross-ownership of shares.
While the Japanese company stated that it did not see anything really negative about this merger, Nissan still abstained from voting on the deal on June 5. The French government had been looking for Nissan’s support, and so voted against the merger so that more time could be bought. However, this is the move that finally caused Fiat Chrysler to walk away from the entire deal.
Renault SA saw its share prices plunge 6.41% and its ally Nissan Motor Co.’s shares dropped 1.70%.
Market analysts believe that there are too many advantages to this merger for it to be completely off the table. The merged company would be the 3rd largest auto company in the world, worth $37 billion. Added to that, synergies of up to €5 billion (~$5.63 billion) could be delivered for the new company in the next 6 years.
Fiat would have been able to leverage Renault’s stronger electric vehicle technology, while Renault could have used Fiat’s SUV market to strengthen its Jeep sales.