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Why Fiat Chrysler called off merger talks with Renault

Murali Gopalan | Updated on June 06, 2019 Published on June 06, 2019

The deal is off After a few days of intense excitement, FCA and Renault will not be coming together thanks to ‘political conditions in France’   -  REUTERS

Company cites political conditions in France as impediment to talks progressing further

It is perhaps the most short-lived merger proposal in the auto industry.

Barely 10 days since it first articulated its interest to merge with Renault, Fiat Chrysler Automobiles (FCA) has now withdrawn its offer stating, among other things, that ‘it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully’.

The turnaround marks an astonishing volte-face from what would have been a promising marriage between two big automobile brands. The new entity would have been the third largest in the world after Volkswagen and Toyota with sales of 8.7 million units.

It also comes in a week when Jaguar Land Rover and BMW as well as Toyota and Subaru made separate announcements to collaborate in the electric space. Reports in the international media suggest that Renault’s partner, Nissan, was not exactly upbeat about the proposed merger with FCA.

Government issues

Consequently, the French government, which has a 15 per cent stake in Renault, apparently made clear its lack of enthusiasm to go ahead with the proposal. It explains why FCA made the reference to ‘political conditions in France’ and marks a rather tepid end to what was seen as a grandiose marriage.

Come to think of it, there are no winners in this dramatic rollercoaster script that promised the moon before being brought down to earth with a bang. FCA will continue its search for an ally and there is no reason to believe why it will not be Groupe PSA all over again.

After all, the maker of the Peugeot and Citroen brands as well as Opel and Vauxhall, was the first to be sounded out by FCA for an alliance. Nobody knows why things did not go according to plan eventually. As for Renault, it is back to square one and now has the added responsibility of assuaging the feelings of Nissan, it ally of two decades.

Nissan’s role

After all, the Japanese auto-maker may have been smarting at the merger proposal with FCA considering that it would have been relegated to the sidelines in the process. From its point of view, the present alliance with Renault is one-sided anyway given that it only has a 15 per cent stake (to the latter’s 44) with no voting rights.

The planned Renault-FCA merger did not have a berth for Nissan and would have reduced its stake even further in the process. Now that the proposal has been shelved, Nissan will be eager to flex its muscles all over again. Things have been simmering for a while now between the partners and the November arrest of Carlos Ghosn who was heading both Nissan and Renault, only deepened the fissures.

The days ahead will now be one of healing wounds and the French auto-maker will have to tread carefully while mollifying its Japanese partner who could be going through mixed feelings of anger, hurt and triumph. The harsh reality that Nissan will also have to face is that it has not been in the best of shape lately quite unlike the past where it was the stronger of the two.

Today, there is no point splitting hairs with Renault and the best way forward for Nissan is to bury the past and strive to jointly strengthen the foundation. Things have been sticky since the time Ghosn was jailed even while a fresh beginning has been attempted with changes in leadership.

Mitsubishi is also part of the alliance and it is now up to Renault to lead the way and build the trust of its Japanese duo from scratch. Explanations will perhaps be due for the FCA saga especially when it was clear that both Nissan and Mitsubishi would have had little to do in the merged entity.

Assuming FCA and PSA start talks all over again, there could still be a key stakeholder to reckon with in the form of the French government. Merger proposals are also accompanied by risks of layoffs and plant closures, which means the unions are not going to be jumping for joy either.

Chinese interest

Apart from the French government, China’s Dongfeng Motor also has a stake in PSA by virtue of the fact that it helped out the latter during the global slowdown post-2009. It was during this time that the car-maker turned to General Motors for help before Dongfeng threw a huge lifeline and rescued it from an abyss.

It is also very likely that the Chinese will be watching the events unfolding at FCA with great interest. It was barely a couple of years ago when Great Wall Motors expressed its keenness in acquiring the Jeep brand. There was a great deal of excitement in the market when the news broke out but nothing materialised eventually.

There were also reports doing the rounds of Geely eyeing FCA. This was not surprising given the company’s track record with its Volvo Cars acquisition. In recent times, Geely had also picked up considerable stakes in Daimler AG and Volvo Trucks. Chinese auto-makers will be more than delighted to buy out the Jeep brand, which accounts for over a third of FCA’s sales worldwide.

Across the world, auto-makers are busy sewing up alliances to stay afloat in an arena that is throwing up huge surprises in mobility disruptions. While a host of Japanese companies are closing ranks with each other, the likes of Volkswagen and Ford plan to pool their skills in pick-ups and electric mobility. Going solo in the following decade could be fraught with risks as companies face new challenges arising from electrification, autonomous driving and so on.

The sequence of events at Renault also throws up questions on the role of government in areas like car manufacturing. India can relate to this easily considering that its market leader, Maruti Suzuki, was initially promoted in the early 1980s as a joint venture with the government. There were, of course, huge benefits in the process but relations between the two started souring.

Finally, wisdom prevailed even while there were huge ego face-offs and the Indian government wisely exited the joint venture. Today, Maruti Suzuki is a strong listed company. It’s a million-dollar question if the French government also decides to follow suit someday and leave the business of car making to those who know it best.

Published on June 06, 2019
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