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Jeep's Merger With The French Already Causing Problems

Industry News / Comments

Where will the cost cuts come from again?

As the merger between Fiat Chrysler and Renault gets closer to becoming a reality, analysts, industry hawks, and even enthusiasts have listed countless ways in which both companies stand to benefit. Together, the two companies would further cement Europe as an automotive powerhouse, even though it already houses Volkswagen, BMW, Mercedes, and Jaguar Land Rover.

And then there are the practical reasons, like the fact the new company would have access to markets that the FCA and Renault couldn't enter on their own and that FCA, as laughably behind in EV tech as it is, needs to borrow Renault's EV expertise while Renault could strongly benefit from having access to luxury market knowledge from FCA's Maserati and Alfa Romeo.

There are, however, some downsides to the merger that are only now starting to come to light. According to Reuters, the finances of such a deal may not end up being as rosy as either brand hopes. Initial news of the merger touted $5.6 billion in annual savings for the combined entity, which would be a result of consolidating platforms, powertrains, and parts, sharing technology, splitting the research and development bill, and cutting labor where it becomes redundant.

But with the French government instructing Renault not to cut local jobs and the Italian government saying the same to FCA, the main source of savings will need to come from platform consolidation and a unified R&D effort. Of course, that was the reason for the initial push for a merger, but the payoff may not come until years down the line, especially since EVs are not particularly profitable yet.

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The problem is magnified in Europe, where FCA needs to rally in order to meet new emissions standards since it's barely getting by buying regulatory credits from rivals. And it gets even worse when considering that Europeans want small affordable cars, and offering those in EV form while turning a profit is not easy.

As Carl-Peter Forster, an auto industry veteran who has worked on numerous transformational car deals said, "The economics of cheap small cars are getting harder," said Forster. "Hybrid technology is too expensive in the small value segment and with electrification there is the dilemma of having a large battery which is too expensive or having a battery which is cheaper and small, but offers only limited operating range," he explained. While this may end up being only a small road bump in what could be a long and fruitful future for the potential new auto giant, it's definitely worth considering.