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FCA Offers Renault Alliance, Possible Merger

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No one was sure exactly what would come out of the recent negotiations between FCA (Fiat Chrysler Automobiles) and the Renault Group - talks that were confirmed by the former ahead of urgent meetings that took place between executives of the two companies yesterday. Now we know that FCA has made an offer to Renault, and that the latter group has agreed to study it.

Ultimately, the offer refers to an eventual full merger between the two automotive groups. To be clear, this is an offer made by FCA to Renault, which has confirmed reception of the friendly offer and says that it will "study with interest the opportunity of such a business combination."

Clearly, there’s no cause for assuming this is a done deal. Many voices will have to be heard before any deal is finalized, starting with the French government, owner of a 15% stake in Renault. There’s also a the Italian government that will undoubtedly have it say. And perhaps the thorniest issue involves Nissan, Renault partner that has not been part of the discussions so far.

There are many moving parts and variables to consider, and a lot of time for one party of other to develop cold feet. But if the stars align and a deal is made, the merged FCA-Renault entity would become the world’s third-largest automotive group, behind only Toyota and Volkswagen.

Photo: Renault

For FCA, the offer is born of several advantages the auto giant sees in making such move.

While refraining from going into too much detail, the company, has identified several sectors where the two partners would benefit from teaming up. Among them were the costs of developing new technologies related to connectivity, autonomous driving and electrification that could be shared.

FCA also believes that a fusion would prevent some assembly plants from closing, as economies of scale could reduce production costs. For example, buying components as a merged group would account for 40% of the projected savings following a merger, 30% would come from combined research and development, and 20% from improved efficiencies in manufacturing and tooling.

The automaker also estimates that a merged entity could reduce the number of platforms used by 20%, and the number of powertrains by 30%.

Photo: FCA

The offer specifies that the merged company would be headquartered in the Netherlands, and be listed on stock markets in Italy, Paris and New York. As for the makeup of the board that would run the company, it would consist of 11 members, including four each from Renault and FCA and one from Nissan, along with three independent members.

Where do we go from here? It’s anybody’s guess what the future holds.

Stay tuned.