It has been fairly apparent for a while now that major consolidations in the auto industry are coming. The torrid pace of new car sales from a few years ago has slowed. Even China saw a decrease in total new car sales last year for the first time in two decades.
The cost of developing new electric cars and converting factories to build them is skyrocketing and the rush to get self-driving cars on the road is putting pressure on automakers as well. In light of all those factors, companies are exploring cooperative agreements that will help spread the work load and the financial burdens across a wider base.
We have predicted for some time that some companies will likely be unable to compete and simply go out of business. BMW, Ford, GM, and Toyota are on the list of possible candidates. Others will join forces in an effort to remain relevant in a changing world.
According to the New York Times, Renault and Fiat Chrysler are engaging in talks that could bring about a merger of the two companies. The new company would have a market capitalization of $39 billion.and create the third largest car company in the world behind only Volkswagen and Toyota.
Fiat Chrysler issued a statement saying 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.”
In a separate statement, Renault said its board would consider Fiat’s “friendly proposal,” adding that its board “decided to study with interest the opportunity of such a business combination, comforting Groupe Renault’s manufacturing footprint and creating additional value for the Alliance.” A spokesman for Fiat Chrysler said there had been no decision on a name for the merged company and no decision on who its CEO would be.
The government of France is a major stockholder in Renault. Although the two companies say there will be no factory closures as a result of the deal and no layoffs, France is skeptical of any arrangement that gives more power to Italian interests. Since Fiat and Renault both have European factories operating below their maximum capacities, that pledge seems suspect.
The powerful CGT labor union that represents Renault factory workers in France has blasted the proposed deal. With Renault and Fiat Chrysler both owning half the shares in the new company, “Nothing would prevent the Italian shareholder from favoring its national base,” CGT said in a statement. Adding insult to injury, the union is miffed that it only found out about the proposal from media reports. “The CGT considers that there is nothing good to expect from a Renault FCA merger,” it says.
What About Nissan?
Another question is how the merger would affect the Renault Nissan Alliance, which also includes Mitsubishi. Recently, France pushed Renault to solidify that relationship, but the Japanese government strongly resisted any such idea. The combination of all four companies would make it the largest car company in the world with more than 15,000,000 in annual new car sales.
But forging a giant corporation, while always touted as offering great cost savings and efficiencies, often produces quite the opposite. Think of the Time/AOL merger or the rocky marriage between Daimler, parent company of Mercedes-Benz, and Chrysler. After years of trying to make the relationship work, Daimler was only too glad to have Fiat take the American company off its hands.
Chrysler Without Jeep Is Nothing
Being brutally honest, Chrysler has almost nothing to bring to the party except hulking pickup trucks for the American market and the Jeep brand, which traces its roots back in time through American Motors to the Willys CJ, or civilian jeep, that first appeared in 1945 after the Second World War.
According to commentator Doug Stewart, “The spartan, cramped, and unstintingly functional jeep became the ubiquitous World War II four-wheeled personification of Yankee ingenuity and cocky, can-do determination.” That same “spit in your eye” attitude is still a vital part of the Jeep brand today.
Then There Is China
Oddly enough, the merger would do little to advance the interests of any of the companies in the Chinese market. Neither Fiat, Chrysler, Nissan, nor Mitsubishi has any significant presence in China, although Nissan is attempting to introduce lower cost variants of its LEAF and Versa Note products there.
For its part, the Chinese automotive industry has shown little interest in export markets, except to parts of southeast Asia, but one day its auto manufacturing sector will mature. That’s when many traditional car companies will face their greatest challenge.
To put it bluntly, none of the 4 companies involved in this proposed merger makes cars that would be greatly missed if they disappeared from the marketplace entirely. As the world transitions to electric transportation, none of them offers compelling cars and all are flirting with their own existential crisis. Whether rolling all or some of them into a new corporate structure will make them more relevant in the future is an open question with no apparent answer.