Fiat Chrysler, Renault Stocks Jump On Merger News

News of automakers Fiat Chrysler and Renault may hold merger talks lifted the stocks of both the players. Shares of Fiat Chrysler and Renault jumped 13 and 11.5 percent respectively.

The merger holds the scope to cut production costs and pooling of resources to develop the next generation of automobiles.

A statement from Fiat Chrysler Automobiles (FCA) pitching the deal noted that the combined business would be owned 50/50 between shareholders of FCA and Groupe Renault.

The FCA is popular for its popular city car Fiat 500. The merger needs the approval of both automakers’ boards.

Advantage of merger

The combined entity could generate sales of 8.7 million vehicles a year and become the world’s third largest car manufacturer.

At the sales front, in 2018, Fiat Chrysler sold 4.85 million vehicles worldwide. The bulk of it was in North America where Jeep and RAM Trucks were the staple brands. In the same year, Renault sold 3.81 million vehicles and Europe was the core market.

According to a Bloomberg report, Fiat Chrysler Automobiles NV is looking to start off as an operational tie-up with Renault SA by Monday to bloom the initiative towards a full-scale merger.

The report also said the deal could involve an exchange of equity as well. However, in the early phase, Renault’s existing alliance partners Nissan Motor and Mitsubishi Motors will not be involved. However, they may join the merged Fiat-Renault later on.

The report notes the compulsions faced by car producers. Sales are falling in top car markets and pressure is high on manufacturers to electrify, reduce emissions and make investments in self-driving technology.

According to estimates, Fiat-Renault pact can bring about immense cost savings in Europe via shared investments and reduced costs.

Fiat upbeat on merger prospects

Fiat Chrysler expects the combined entity could generate annual savings of 5 billion euros or $5.6 billion. According to a statement by Fiat Chrysler, a merger may not initiate plant closures. It may provide a bigger incentive to lead the development of electric and autonomous vehicles.

During Fiat Chrysler’s recent earnings call, CEO Mike Manley was asked whether it is exploring a merger with another automaker.

“We are going into an environment where there are going to be opportunities,” Manley said.

Renault’s potential partnership with FCA has also kindled speculation that the former may call off the alliance with Japan-based Nissan Motor.

In Nissan, both hold stakes on each other. However, the alliance has come under stress after the arrest of Nissan-Renault CEO Carlos Ghosn in Japan over alleged financial crimes.

Who will lead the merged entity?

The Bloomberg report also said, if the deal makes progress, Exor NV, the investment vehicle of Fiat’s founding Agnelli family that owns 29 percent in Fiat could become the biggest investor in the combined company.

It is likely that Fiat Chairman John Elkann could be the chairman of the merged company while Renault chairman Jean-Dominique Senard may become the CEO.