Sergio Marchionne when he led Fiat Chrysler Automobiles had long sought a big merger. He said the auto industry needed to consolidate to be more efficient in its investment. It was his major piece of unfinished business when he died in July 2018.
Marchionne’s successors are taking up that mantle. Early Monday, Fiat Chrysler proposed “a 50/50 merger” with France’s Renault. The French automaker replied in a statement it will study the proposal “with interest.”
The move comes after the two companies engaged in “initial operational discussions” to identify products and geographies where they could collaborate,” according to Fiat Chrysler.
As a result, Fiat Chrysler said, the talks “made clear” a merger “would substantially improve capital efficiency and the
speed of product development.” That sounds similar to what Marchionne preached. However, he was turned away when seeking combinations with General Motors Co. and other large automakers.
The company added the case for a merger “is also strengthened by” major changes taking place in the industry such as self-driving and electric vehicles.
Self-driving vehicles are supposed to be the next big thing for the industry. The problem is nobody knows exactly how that’s going to play out. Meanwhile, regulatory pressure in China and Europe is forcing automakers to develop electric vehicles to reduce emissions. Both developments require investment and lots of it.
Fiat Chrysler says the combination with Renault would create an automaker selling 8.7 million vehicles annually. The merged Renault-Fiat Chrysler potentially is even larger than that. Renault also is in an alliance with Japan’s Nissan Motor Co. and Mitsubishi Motors Corp.
That alliance was shaken by last year’s arrest in Japan of Carlos Ghosn, who held high-ranking posts at Renault and Nissan. He was charged with underreporting his compensation and using Nissan assets for personal use. Ghosn’s case still is pending. Nissan severed ties with Ghosn and the executive stepped down from Renault.
Still, the alliance remains in place and on the mind of Fiat Chrysler executives. The company said it “looks forward” to working with the Japanese companies aligned with Renault “to create additional value for all Alliance members.” In its pitch, Fiat Chrysler is estimating that will amount to 1 billion euros annually.
Chrysler’s Soap Opera
How this will unfold remains to be seen. Fiat Chrysler says no plant closings will occur. Still, the development has the potential to be a new chapter in a long-running soap opera at the former Chrysler Corp.
In the past 21 years, Chrysler was acquired by Daimler AG, then sold to a U.S. private equity company and finally merged with Italy’s Fiat as part of a U.S.-backed bailout.
The Chrysler portion of Fiat Chrysler has emerged as a profit engine. Under Marchionne, it moved early to dispense with sedans to concentrate on pickups, crossovers and SUVs. Bigger Detroit-area rivals GM and Ford Motor Co. have mostly followed the same strategy. Meanwhile, Fiat Chrysler plans $4.5 billion in new investments, including a new factory in Detroit, to increase output of Jeep and Ram brand vehicles.
Despite the present prosperity, there is plenty of uncertainty ahead. Marchionne never felt Fiat Chrysler was big enough and always sought a combination to create something bigger. Marchionne may be gone but it’s clear that Fiat Chrysler executives still believe in his playbook.