Renault Merger

Talks of a Possible Alliance Between Carmakers Fiat Chrysler and Renault in Progress

Talks of a Possible Alliance Between Carmakers Fiat Chrysler and Renault in Progress

Talks of a possible alliance between car companies Fiat Chrysler and Renault are in progress.

A union worth roughly 33 billion euros and that has the potential to create the planet’s third biggest car manufacturer, has been offered to the French carmaker Renault by Fiat Chrysler Automobiles. The alliance could save billions of euros annually through research into autonomous and electric cars especially following an increased awareness and concern with combating climate change and what global car manufacturers can do to reduce their greenhouse gas emissions.

Should the two car companies merge together, Fiat Chrysler has suggested that they could be very much able to manufacture around 9 million automobiles a year and reduce the cost of research to 5 billion euros.

Managing editor for Automotive News Europe, Douglas Bolduc said:

“On a lot of levels the merger does make quite a bit of sense because it would provide some strengthening for both Renault and Fiat Chrysler. Both sides of the equation have something that the other one wants and needs and so it could work but it’s going to be a long road to get there. The speed with which the automotive industry, particularly in Europe, is being dragged into the move to electrification and the fact the Fiat Chrysler is so weak in this area and Renault arguably the strongest when it comes to electrification in Europe. That is a big gain that Fiat Chrysler could have, and Renault would have the gains of if you have the economies of scale, by filling factories building these cars for multiple brands that’s also an advantage.”  

Watch the full news report here.

If the two car manufacturers strike a deal it would place them in the number 3 position in terms of the size of the company behind Volkswagen and Toyota. The US manufacturer General Motors would be pushed just behind into fourth position. The conglomerate firms would be owned by half of the shareholders from each company. Following talks in Renault’s headquarters, the French carmaker said it would contemplate Fiat Chrysler’s proposition very carefully.

With the announcements of Fiat Chrysler’s proposed merger with Renault, shares in both companies rose amidst growing pressure from environmental activists and shareholders to introduce higher standards towards the prevention of climate change, and a demand to transfer to electrification as opposed to fossil fuels.

Electric Vehicles

Both companies could benefit from one another as Fiat Chrysler has a greater presence in the US markets specifically the SUV sector, whereas Renault has a greater presence in Europe especially within the move towards the electrification of cars.

The proposed merger between Fiat Chrysler and Fiat suggests that Nissan and Mitsubishi’s partnership with Renault could be rejuvenated as both Japanese companies could also benefit from the union. However, Douglas Bolduc suggests that due to recent tensions following the arrest of Nissan’s former CEO Carlos Ghosn on charges of financial misconduct, Nissan could use this proposal as a way of divorcing itself from Renault completely.

“As we have heard Carlos Ghosn was trying to create a deeper relationship with Nissan, and one of the open questions in all of this is whether or not Renault has put themselves into a situation where if Nissan says ‘you know what it’s been a nice 20 year relationship but now its time to go our separate ways’ that Renault is not left in a very weakened situation. A lot of the question is whether or not Nissan, which has shown a great deal of resistance to forming a deeper partnership with Renault will use this as an opportunity to exit or potentially create the largest automaker in the world.”

Click here to watch the full report.

In a press release on May 27th, 2019, FCA (Fiat Chrysler Automobiles) said:

The proposed combination would create a global automaker, preeminent in terms of revenue, volumes, profitability and technology, benefitting the companies’ respective shareholders and stakeholders. The combined business would sell approximately 8.7 million vehicles annually, would be a world leader in EV technologies, premium brands, SUVs, pickup trucks and light commercial vehicles and would have a broader and more balanced global presence than either company on a standalone basis.

Geographically, based on FCA and Groupe Renault’s 2018 global sales, the combined company would be #4 in North America, #2 in EMEA and #1 in Latin America and would have the increased resources necessary to grow its footprint in the APAC region. On a simple aggregated basis of 2018 results, the combined company’s annual revenues would be nearly €170 billion with operating profit of more than €10 billion and net profit of more than €8 billion.

Click here to read the full FCA press release.

As a 15 percent shareholder of Renault, France’s government said it was welcoming of the proposed alliance with FCA but that it had its reservations in terms of analyzing the terms and conditions of the merger and workers rights.

Shares in Renault rose by over 11 percent and shares in Fiat Chrysler rose to just under 10 percent as investors showed a favorable attitude towards the proposed merger.

Evercore ISI Group’s head of global automotive research, Arndt Ellinghorst, said:

“It shows you how undervalued carmakers are and there has been a lot of talk about consolidation globally for years, as we are now at the peak of the cycle, I think that the market welcomes some action regarding consolidation. I would have some concerns regarding details and also execution in the end, but the first reaction is understandably quite positive for both.”

Click here to watch the full CNBC interview.

Hiroto Saikawa, the CEO of Nissan showed an interest in possible unions that could benefit the French and Japanese alliance. FCA predicted that the Japanese carmakers Nissan and Mitsubishi could benefit greatly from the alliance potentially saving billions in research costs, however, how the Japanese car manufacturers will react to the proposed merger remains uncertain.

Market trends and environmental concerns are driving car manufacturers towards automated and electrified vehicles; therefore, partnerships between car manufacturing companies have become a key factor in enhancing research and development for future technologies in terms of reducing climate change and autonomous driving. Similarly, increasing pressure for emission reforms can be noted in Asia and the Eurozone as global warming concerns continue to escalate.

Climate Change

This proposal offers the opportunity to create the #3 global automotive company with broad, complementary and strong brand and geographic presence and important strengths in transforming technologies. It also confirms and enhances the value of the existing Alliance and its potential to become even stronger in the future. While there is no certainty that this proposal will result in a transaction, the Board of FCA has strongly supported and approved the proposal which will now be reviewed by the Groupe Renault Board of Directors. The definitive agreements for the proposed combination are subject to negotiation and to final review and approval by the FCA and Groupe Renault Boards. Completion of the proposed combination would also be subject to customary closing conditions, including approval by each company’s shareholders, as applicable, and the satisfaction of antitrust and other regulatory requirements.

To read the full FCA press release click here.

Risk Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79.28% of retail investor accounts lose money when trading CFDs with this provider. The information contained in this market review should not be construed in any way, as containing investment advice and/or a suggestion and/or solicitation for any trading activity and financial transaction. The data contained in this market review is not necessarily real-time nor accurate. The data and prices on the material are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. There is no guarantee and/or prediction of future performance. EuropeFX, its affiliates, agents, directors or employees do not guarantee the accuracy and validity of any information or data made available and assume no liability as to any loss arising from any investment based on the same. Trading Forex/CFD’s carries a high level of risk and can result in the loss of your whole investment. Forex/CFD’s are leveraged products and therefore Forex/CFD’s trading may not be appropriate for all investors. It is recommended that you do not invest more money than you can afford to lose to avoid significant financial problems in the case of losses. Please make sure you define the maximum risk acceptable for yourself.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79.99% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Find more details about risk here.

eFXGO! Official iOS Mobile App Free • available on app store

4.5/5