Fiat Chrysler proposes 50-50 merger with Renault

Fiat Chrysler Automobiles has proposed merging its business with Renault that, if accepted, would create the third largest global automaker with 8.7 million in annual vehicle sales.

FCA delivered Monday a non-binding letter to Renault’s board that proposes combining the business as a 50-50 merger. FCA’s proposal illustrates the growing desire among automakers to consolidate, or form partnerships, in an environment of increasing regulatory pressure, declining sales and rising costs associated with next-generation technologies such as autonomous vehicle technology.

Under the proposal, the combined businesses would be split equally between FCA and Renault shareholders. The board would be a combined entity of 11 members, FCA said. The majority would be independent. FCa and Renault would get equal represent with four members each as well as one nominee from Nissan. The parent company would be listed on the Borsa Italiana in Milan, Euronext in Paris and the New York Stock Exchange.

French automaker Renault has an alliance with Nissan Motor. The two companies, whose relationship has become stressed in the fallout over the arrest of former Renault-Nissan Alliance CEO Carlos Ghosn and subsequent power struggle, share vehicle parts and collaborate on technology. Renault owns 43.4 percent of Nissan. Nissan owns 15 percent of Renault.

Fiat Chrysler is best known in U.S. for the company behind the Jeep and Ram trucks. But its business is far larger. Fiat, which has a market value of $20 billion, is also one of Italy’s oldest companies and owns brands like Alfa Romeo, Fiat, Lancia, and Maserati.

Fiat acquired a stake in Chrysler in 2009. The FCA people know today — which employs nearly 200,000 people — was created when the companies merged in 2014.

The proposed merger would result in cost savings. However, FCA insists it would not come from plant closures. No factories would close as a result of the merger, FCA said in its proposal. In a release describing the proposal FCA states:

The benefits of the proposed transaction are not predicated on plant closures, but would be achieved through more capital efficient investment in common global vehicle platforms, architectures, powertrains and technologies.

The combined companies would realize more than 5 billion euros in estimated annual run rate savings by collaborating on products and in certain regions, particularly when it comes to the development and commercialize of new technologies. FCA noted that these areas included connectivity, electrification and autonomous driving.

FCA argued that is has a history of “successfully combining OEMs with disparate cultures to create strong leadership teams and organizations dedicated to a single purpose.”

Those cost savings will be crucial for both companies if there’s a downturn in sales — a reality that other automakers like GM and Ford are already preparing for. It would also allow the companies to pursue technologies such as advanced driver assistance systems and autonomous vehicles.

FCA, which operates 46 research and development centers, has invested in advanced driver assistance systems like its highway assist feature offered in its Maserati brand. It has also relied on partnerships such as the one with self-driving vehicle company Waymo .

Last year, the company announced an expanded partnership with Waymo that will add up to 62,000 more Chrysler  Pacifica minivans to Waymo’s self-driving car fleet. The two companies are also working on ways to license Waymo’s self-driving car technology in order to deploy the tech in cars for consumers.

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