DETROIT, Mich: The move came after the Renault board met for six hours outside of Paris to consider the merger, only to postpone a decision at the request of the government, which owns 15% of the French automaker.
“It has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully,” the Fiat Chrysler statement said. “FCA will continue to deliver on its commitments through the implementation of its independent strategy.”
The merger could have saved billions in purchasing costs and helped each company share costs of developing autonomous and electric vehicles. FCA in particular needs a merger or alliance partner as it does not possess the global scale necessary to compete, not has i developed much of its own tech and intellectual property in those areas.
Before former FCA CEO Sergio Marchionne died last year, he had been seeking mergers and alliance with General Motors, as well as other automakers. But he found no takers. He often spoke publicly about the need for the company to have such a partner for R&D sharing and global scale.
The question for FCA now is will the company aggressively pursue a merger or alliance with other automakers. Companies who are in merger talks that fall apart are infamous for pressing for another, different deal.
The French government has been chilly to the merger deal since it was floated ten days ago. Renault is an important source of jobs and national pride for France, and government officials openly worried that there would be pressure to cut French jobs as the combined Renault and Fiat cut jobs and consolidate vehicle platforms in their small and medium sized cars, as well as city commercial vehicles–all obvious places for a merged company to cut.
This is exactly why governments should not own stakes in industrial companies. Renault could achieve a better return on shareholder value if it did not have to acquiesce to the demands of government to maintain more jobs than is required for the enterprise. Volkswagen AG, too, is 20% owned by the State of Lower Saxony, and has long had the same issue.
Renault’s powerful CGT union has been against a Fiat Chrysler merger, fearing the loss of jobs and arguing the proposal undervalues Renault. The merger proposal also complicates the dicey negotiations between renault and Nissan. Renault owns a large stake in Nissan. The companies have been in a global alliance for twenty years, and it is currently under stress after the chairman of the alliance and CEO of Renault Carlos Ghosn was jailed last November, charged for financial crimes. It has come to light that Nissan executives helped Japanese prosecutors make their case against Ghosn.
Nissan had no comment Wednesday on the collapsed deal, but reports have surfaced that the Japanese automaker was not warming to the deal in part because it did not want to share its intellectual properties–jointly owned with Renault–with a rival that it competes against in multiple markets including North America, Europe and Latin America. A weaker FCA is good for Nissan in those markets.
FCA’s shares have taken a beating in the last year, losing about 50% of value. This news is not going to make investors happy, though the company was enjoying no benefit since the news broke of a “likely merger” ten days ago.