Renault and Fiat tie-up could surpass VW sales

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Fiat Chrysler Automobiles (FCA) has delivered a non-binding letter to the Board of Groupe Renault, proposing a 50:50 merger of the two entities.

Overall, Renault deliveries fell 5.6% to 908 348 vehicles in the first quarter, while Fiat Chrysler sales were down 14% to 1.04 million cars and light trucks. The group would be listed in Paris, New York and Milan, it said, adding that the deal would involve no plant closures, although it didn't address potential job cuts. A 2015 agreement granted Nissan guarantees preventing Renault from interfering in its governance, a move the Japanese carmaker considered necessary because the French government is Renault's most powerful shareholder.

The combined group would forge the world's third-biggest automaker, making some 8.7 million vehicles a year and trailing only Volkswagen and Toyota.

The combination would be carried out as a merger transaction under a Dutch parent company.

It said it made the proposal to Renault after initial talks between the two companies revealed that a full merger "would substantially improve capital efficiency and the speed of product development". Together, the three companies are the biggest maker of passenger cars in the world.

A deal could help both companies address some of the shortcomings that have led their market valuations to lag those of major rivals, as well as the challenges of switching to electric and self-driving technologies and tougher emission regulations. Renault owns more than 40 percent of Nissan, although Nissan's ownership share in Renault is much smaller.

But analysts also warned of big complications, including Renault's existing alliance with Nissan, the French state's role as Renault's largest shareholder and potential opposition from politicians and workers to any cutbacks.

Jerry Dias, national president of Unifor, said he was told by an executive with the company that the merger plan unveiled on Monday was about offsetting costs by sharing vehicle platforms and systems while offering complementary lineups.

The Renault-Nissan partnership, underpinned by crossed shareholdings, has been strained by the scandal surrounding former chairman Carlos Ghosn, who was ousted in the wake of a Nissan internal investigation.

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Contacted by AFP, neither Renault nor Fiat would comment.

In its statement Monday, FCA said its proposed board of directors would include a nominee from Nissan, although it's unclear if Nissan was involved with negotiations between Renault and FCA.

The proposal indicated that Renault's existing alliance with Japan's Nissan and Mitsubishi could continue and that the companies would benefit financially from the deal through extra savings.

Analysts at financial firm Jefferies said it was "hard to disagree with the logic" of the deal, as there is a strong fit in the markets each company covers and the brands they offer.

The French government, which owns 15% of Renault, is cautious about the new merger idea.

"We need to have industrial giants in Europe" to compete globally, she said.

"If there's a partnership, merger, relationship that makes us stronger, then I'm absolutely open to looking at it", said Fiat Chrysler's CEO Mike Manley recently. "Even so, the merger talks will add pressure to Nissan".

Italian Deputy Premier Matteo Salvini, who initially threatened to intervene, later gave his blessing - telling Agence France-Presse he trusts the deal "will safeguard every job in this country".