According to the news report by Bloomberg, Fiat Chrysler Automobiles NV is expected to make an announcement about an operational deal with Renault SA on Monday, May 27, which could result in the complete merger of the two companies, leading to the creation of the 3rd largest auto company in the world.
According to anonymous sources that requested not to be named as the discussions are still not public, this deal could include an initial exchange of equity between the two company.
The French car maker, Renault’s current partners, Mitsubishi Motors Corp. and Nissan Motor Co., are not involved in this deal, however, the sources state that they could be invited to join the merged Fiat Chrysler-Renault company at a later point in time.
These negotiations have apparently moved on without Nissan’s involvement. The Japanese car maker has been Renault’s alliance partner for more than 20 years now, so this move highlights the intense pressure being faced by auto makers to pool in resources to survive the dramatically changing auto industry.
Auto sales have been falling in the major car markets across the globe, and regulators in most countries are pushing automobile manufacturers to switch to electric cars and also reduce vehicle emissions.
This has forced most auto companies to spend heavily on the development of autonomous technology due to the intense competition from new entrants in the market such as Alphabet Inc.’s Waymo.
A merger of Fiat Chrysler and Renault would result in immense cost savings in Europe, both from sharing their investments as well as cost reduction in the currently struggling auto market.
A large part of Fiat’s global workforce is based in Europe even though almost all of its profits come from North America, and most of Renault’s car sales come from this region.
Through the merger, Renault would get access to the difficult-to-enter North American market, while Fiat would get entry into Russia, Renault’s second biggest market.
According to the sources, Renault is not the only company that Fiat Chrysler is assessing for a partnership. The Italian-American company has also held initial discussions with Peugeot’s owner, PSA Group, for a potential partnership.
In an emailed statement, PSA Group’s spokesperson has stated that the company is open to any opportunity that could create long-term value for it.
Falling sales in three of the biggest markets – the US, Europe and China – have pushed the idea of consolidation to the fore for both Fiat as well as Renault.
While Fiat has been in talks with both Renault and PSA, the French automaker has been trying to strengthen a 20-year-old alliance with Japanese car maker Nissan, which so far has proved unsuccessful.
Negotiations between the Italian-American and the French car makers have forged ahead in the last few days, after participants have found a way to structure the deal so that it will be beneficial to both Fiat Chrysler as well as Renault.
According to the same sources, Fiat Chrysler has agreed to push through with the talks on the condition that Renault does not go ahead with transactions with Nissan in the near term.
If this deal goes through, then the chairman of Fiat, John Elkann, who is also the head of the Agnelli family (the founders of Fiat, and also majority shareholders in the Italian-American company), is expected to become the chairman of the new merged company.
The chairman of Renault, Jean-Dominque Senard, is expected to become the Chief Executive Officer of the company.
Renaults board is expected to meet on Monday morning, however, representatives from both companies have declined to comment on these developments.