FCA Merger With Renault Will Seek Better Prices

DETROIT, Mich.–The proposal by FCA over the weekend to merge with French automaker Renault is being sold by the parent company of Jeep and Fiat as a means to share costs of electric and autonomous driving, but it is also a play to achieve lower supplier costs in general by sharing production scale.

Under FCA‘s proposal, shareholders of both companies would receive 50 percent of the new company. The combination would have a total value on the stock market of $39 billion. Both companies were in talks for a strategic alliance over the weekend, but those talks evolved to a merger proposal.

FCA said in a statement that it was motivated by “the need to take bold decisions to capture at scale the opportunities created by the transformation of the auto industry in areas like connectivity, electrification and autonomous driving.

Renault is already in a global alliance with Nissan in which it has achieved billions in annual savings. Fiat and the former Chrysler Corp. since their combination a decade ago have achieved billions in savings by combining purchasing and product development, including through the consolidation of brake suppliers and brake purchasing.

As Renault’s board ponders FCA’s friendly offer, it is in protracted talks with Nissan about the future of that global alliance. Since the jailing of the Alliance’s CEO Carlos Ghosn last Fall, and his subsequent dismissal by both Renault and Nissan, the future of the alliance has been in question with tensions flaring about how much power Nissan, the larger of the two companies, has in the agreement. Renault holds 44% of Nissan and Nissan holds 15% of Renault.

How the Renault-Nissan alliance would be effected by a merger between FCA and Renault is very much a wild card. But the potential for further consolidation of purchasing and suppliers is great, say insiders who are still absorbing the liklihood of the deal coming to fruition.

An FCA-Renault merger would create the third largest automaker in the world behind Volkswagen and Toyota, and ahead of General Motors and Ford.

Besides the sharing of EV and AV costs, insiders say that Renault and Fiat would likely find ways to combine future platforms and architectures around small, mid-sized and commercial vehicles where there is considerable overlap.

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David Kiley is Chief of Content for The BRAKE Report. Kiley is an award-winning business journalist and author, having covered the auto industry for USA Today, Businessweek, AOL/Huffington Post, as well as written articles for Automobile and Popular Mechanics.