Fiat Chrysler looks to partner with France’s Renault

Canadian automobile manufacturing will be a small contributor to the reshaping of the global industry stemming from a merger proposed Monday by Fiat Chrysler with France’s Renault to create the world’s third-biggest automaker.

The merged company, which would combine forces in the race to make new electric and autonomous vehicles, would produce some 8.7 million vehicles a year, leapfrogging General Motors and trailing only Volkswagen and Toyota.

Roughly half a million of those vehicles are produced in Canada at Fiat Chrysler’s Windsor and Brampton plants, which employ about 9,700 people, while Canadian sales amounted to 225,000 vehicles or about 11.3 per cent of the domestic market last year. Renault doesn’t have a manufacturing presence in the country.

Shares of both companies jumped on the news of the offer, which would see each side’s shareholders split ownership in the new manufacturer.

Renault welcomed what it called a “friendly” offer. The company’s board met Monday at its headquarters outside Paris and said afterward that Renault will study the proposal “with interest.” In a statement, Renault said such a fusion could “improve Renault’s industrial footprint and be a generator of additional value for the Alliance” with Japan’s Nissan and Mitsubishi.

Fiat Chrysler’s offer comes at a key moment for Renault. The French manufacturer had wanted to merge fully with Nissan, but those plans were derailed by the arrest of boss Carlos Ghosn on financial misconduct charges in Japan.

Now, questions are growing over the Renault-Nissan-Mitsubishi alliance, which together make more passenger cars than any one company. While Fiat Chrysler says the merger with Renault would accommodate the alliance and lead to savings for them, it is unclear how the Japanese companies might react in the longer term to being tied to a much larger partner.

A deal would save 5 billion euros (C$7.5 billion) for the merged companies each year by sharing research, purchasing costs and manufacturing and tooling efficiencies, Fiat Chrysler said. It promised the deal would involve no plant closures, but didn’t address potential job cuts.

Fiat Chrysler employs about 180 people at its research and development centre at the University of Windsor, along with 300 people at a casting plant in Etobicoke, Ont., and controls three facilities in Ontario under the CpK Interior Products banner.

The company, which produces the Dodge Grand Caravan, Challenger and Charger and the Chrysler Pacifica and 300 in Canada, said in March that it would cut a shift at its Windsor minivan plant at a loss of about 1,500 jobs.

Overall, Fiat Chrysler is stronger in the U.S. and SUV markets, while Renault is stronger in Europe and in developing electric vehicles. Together, they would be worth almost 37 billion euros (C$55.7 billion).

“This operation will bring benefits to both countries,” Fiat Chrysler Chairman John Elkann told reporters in Italy, noting that it had been 10 years since Fiat’s takeover of bankrupt Chrysler, in exchange for small-car technology and management know-how.

The car market has shifted dramatically in the meantime, with Fiat Chrysler abandoning small cars in the United States in favour of SUVs.

Analysts at financial firm Jefferies said it was “hard to disagree with the logic” of the deal, as there is a strong fit in the markets each company covers and the brands they offer.

“The elephant in the room is who will run the entity,” analysts Philippe Houchois and Himanshu Agarwal wrote in a note to investors.

Mergers of equals can be difficult to manage over questions of who gets the top leadership positions and which brands are promoted and invested in most. A tie-up between Daimler and Chrysler in the 1990s was billed as a merger of equals, but it eventually collapsed amid cultural differences and recriminations.

Investors were nevertheless enthusiastic about Fiat Chrysler’s plan, pushing the company’s shares up almost 10 per cent and Renault’s 13 per cent in European afternoon trading.

The French government, which owns 15 per cent of Renault, said it is “favourable” to the idea of a merger but wants to study the conditions more carefully, especially in terms of “Renault’s industrial development” and employees’ working conditions, government spokeswoman Sibeth Ndiaye said. “We need giants to be built in Europe.”

Collaboration among automakers has taken on greater importance in recent years as they seek to build their technological capabilities in pursuit of electrical vehicles, net connectivity and artificial intelligence for vehicles. Automakers are also under pressure from regulators, particularly in Europe and China, to come up with electric vehicles so they can meet tougher climate change regulations and after scandals over the amount of pollutants engines truly emit.

The merger idea is the biggest corporate move so far by Fiat Chrysler CEO Mike Manley, who took his position after the unexpected death last year of the charismatic leader Sergio Marchionne.

What happens to jobs is likely to be a source of concern.

France’s influential CGT union warned against cuts should a deal go through, and said it wants the French government to retain a blocking stake in any new company.