The new company will become the third-largest automaker, unseating GM.
What was still a rumor yesterday ago has now become reality. Fiat Chrysler Automobiles has announced a proposed merger with French automaker Renault. If approved by the necessary authorities, this 50/50 merger would immediately create the world's third largest automaker, behind the Volkswagen Group and Toyota with a total of 8.7 million vehicles sales. The move will push General Motors down into fourth place.
FCA further states the merger will create a strong market presence in key regions and vehicle segments, specifically full coverage from luxury to mainstream. A total of $5.6 billion in annual savings is another benefit. Furthermore, no plant closures are planned.
The decision to merge was also "strengthened by the need to take bold decision to capture at scale the opportunism created by the transformation of the auto industry in areas like connectivity, electrification, and autonomous driving." The proposed merger deal between the two automakers is listed under a Dutch holding company. Following a payout of a €2.5 billion dividend to FCA shareholders, each automaker will receive 50 percent of the combined entity in new stock. The merger will not only be between FCA and Renault, but also the latter's alliance partners, Nissan and Mitsubishi.
While that alliance was already the world's largest, generating over 15 million vehicles annually, the additional synergies that result from the FCA and Group Renault merger "that are expected to accrue to Nissan and Mitsubishi purely as members of the Alliance are estimated to be worth an incremental €1 billion annually."
What will each side gain from the merger? A lot. The newly combined brand portfolio will now enable both automakers to compete in markets where neither could before on its own. All main segments will now be covered, from mainstream to luxury. For example, Renault did not have any outright luxury brands. Now it has gained Maserati and Alfa Romeo as part of its portfolio.
Fiat Chrysler previously did not have any affordable brands or regular access to markets such as Russia, Africa, and the Middle East. That's been fixed with the additions of Dacia and Lada. FCA's commercial vehicles are also a vital asset for Renault, while the French carmaker has a profitable financing business FCA can utilize.
Unlike Renault, FCA not only has a major presence in North America, but it's also a market leader in Latin America. Renault also makes significant autonomous and mobility technology gains, specifically thanks to FCA's partnerships with Waymo, BMW, and Aptiv. For its part, FCA can now tap into Renault's extensive electric vehicle expertise. As we previously reported, FCA had fallen behind competitors for EV development.
The newly merged automakers will now become the fourth-largest automaker in North America, number one in Latin America, and number two in Europe, the Middle East, and Africa. Based on 2018's sales results, the combined company's annual revenues could reach as high as €170 billion. Operating profit could exceed over €10 billion and net profit is projected at more than €8 billion. All told, the merger would be put the following brands under a single roof: Renault, Nissan, Infiniti, Mitsubishi, Dacia, Lada, Alpine, Datsun, Venucia, Fiat, Chrysler, Alfa Romeo, Maserati, Dodge, Jeep, and Ram.
The merger between FCA and Renault should not come as much of a surprise. Prior to his passing last year, former FCA CEO Sergio Marchionne made it very clear he wanted to find a partner. He believed that in order for automakers to thrive in the future, consolidation was required. Marchionne was also the one who convinced the Obama administration to approve the Fiat-Chrysler merger. And now Marchionne's successor, Mike Manley, is continuing that strategy.
Over the past several months, there's been increased chatter about FCA merging or forming an alliance with Peugeot-Citroen (PSA) or Renault. Renault, which is trying to move on from the controversy surrounding its now former CEO Carlos Ghosn, who's been charged with financial misconduct in Japan, can also now open a new chapter in its long history. We'll bring you more details the moment they come in, such as what the newly merged automakers will name the new company.