Fiat Chrysler Automobiles is playing up its proposed merger with Renault, unveiled on Monday, as a chance to create a European-American carmaker with the financial and industrial brawn to survive a turbulent age.
The new company “would have the scale, expertise and resources to navigate the rapidly changing automotive industry,” Fiat said in a statement. That rapid change includes huge shifts to electric and autonomous cars as well as threats to car ownership posed by the likes of Uber and Lyft. Fiat, furthermore, promised to deliver those benefits without closing a single factory.
But how realistic is that assertion? Here is a closer look at some reasons the merger might succeed — and why it might flop.
Together they can target new markets
Fiat Chrysler has a strong position in the United States with its Jeep and Ram brands, but has lacked the money to properly market the S.U.V.s and pickups in promising new markets like the Middle East and Africa, says Michelle Krebs, a senior analyst at AutoTrader.
Jeep has already demonstrated its potential in Europe since Fiat and Chrysler merged in 2014. Sales of Jeeps in the European Union rose 37 percent last year, to 12,200 vehicles. With help from Renault, Jeep could push into more overseas markets.
“Jeep and Ram have great potential globally but they haven’t had the means to do it,” Ms. Krebs said. “There is strong potential if done right. Jeep is known globally.”
They cure each others’ faults
Renault lacks a deep portfolio of S.U.V.s, one of the most profitable, and fastest growing, segments of the industry, which Jeep could provide. Renault is also all but absent from the high end of the market, another profit engine, while Fiat Chrysler has Alfa Romeo and Maserati — though neither brand has excelled lately. Maserati sales fell 20 percent last year, and while Alfa Romeo sales rose about 10 percent to 120,000 cars, that was only a tiny fraction of the market dominated by BMW, Mercedes-Benz and Audi.
Fiat Chrysler, the fourth-largest carmaker, offers Renault an American beachhead. Renault’s stylish small cars would be a tough sell in the United States, where drivers are hungry for S.U.V.s. But there might be a niche for electric models like the Renault ZOE subcompact. In addition, a merger with Fiat Chrysler would allow Renault shareholders to profit from the region, even if no Renault brand cars were exported to America.
In return the French can supply electric cars that Fiat needs to meet quotas in the European Union and avoid regulatory fines. Fiat also desperately needs new models of all kinds in Europe, where it is heavily dependent on the aging Fiat 500.
Renault’s lineup is getting on in years, too. The two companies could share the cost of designing new models, which can easily cost billions of euros.
With Nissan they could rule the world
Renault and Nissan, partners for two decades who added Mitsubishi in 2016, are already in the same league as Volkswagen and Toyota in global car sales. If Jean-Dominique Senard, the chairman of Renault, can hold together the alliance while also merging with Fiat Chrysler, the combined entity would dominate the planet. The carmakers could dictate terms to suppliers, carpet the globe with dealerships, and outspend everyone else on new technologies.
But there is also a less rosy scenario. Which brings us to why the merger might be a bad idea.
They could kill the Renault Nissan Alliance
Renault’s relations with Nissan have been prickly, to say the least, since November after the Japanese authorities arrested Carlos Ghosn, the longtime chairman of the alliance, on suspicion of financial wrongdoing. He has denied all charges.
Since then Hiroto Saikawa, Nissan’s chief executive, has agitated for more autonomy from Renault. He reacted warily to the proposed merger with Fiat Chrysler, which he learned about only days before it was announced.
After a meeting in Yokohama on Wednesday for members of the alliance, the group issued a brief statement that the carmakers had “an open and transparent discussion” on the merger proposal as well as other matters.
Mr. Saikawa said that the merger could ultimately be beneficial, but that he needed “to closely examine it from Nissan’s perspective,” the economic daily Nikkei reported.
Nissan may be forced to swallow its resentments and cooperate with Fiat Chrysler and Renault. Nissan’s sales and profit are declining and the company is struggling to overhaul its operations in the United States, its largest market.
The challenges would spiral for Nissan if its partnership with Renault comes undone. Despite the friction, the companies save billions by manufacturing cars in the same factories and using common engines, transmissions and other components. The last thing Nissan needs is to unscramble that relationship while overall auto sales are declining in every major market.
Car mergers usually fail
Automotive history is littered with failed alliances. No company knows that better than Chrysler, whose marriage to Daimler from 1998 to 2007 was a legendary failure. General Motors had alliances with Isuzu, Fiat and Daiwoo that amounted to little.
The Swedish carmaker Saab languished under General Motors’ ownership and eventually went out of business. Ford once owned Volvo and Jaguar and tried to link them with Lincoln in the “Premier Automotive Group.” It flopped.
But one merger has worked pretty well: Fiat Chrysler. In 2018, Fiat Chrysler’s sales in the United States increased 9 percent, largely because it focused on better-selling sport utility vehicles and trucks.
The potential benefits are overblown
Fiat Chrysler said Monday that the merger with Renault would save 5 billion euros, or $5.6 billion, from buying supplies and parts together and sharing the cost of developing new products and technology.
But Fiat Chrysler also said it would take six years to achieve those savings. Analysts are skeptical about such “synergies,” especially since Fiat Chrysler said it wouldn’t close any factories. In practice, attempts to cut costs often get bogged down in squabbling about whose engine or transmission is better, or whose employees should bear the pain of job losses.
The merger “makes strategic sense and could create a substantial amount of synergies,” analysts at Moody’s said in a note to clients Tuesday. “However, we also consider significant execution risks of such a large scale transaction.”
Bigger is not necessarily better
It is an article of faith in the auto industry that manufacturers need to gird themselves for an uncertain future by becoming big. Only through so-called economies of scale can they hope to survive, goes the argument. One of the most fervent evangelists of this was Sergio Marchionne, the Fiat chief executive who engineered the merger with Chrysler.
The Fiat Chrysler proposal to Renault, which would create the third-largest carmaker after Volkswagen and Toyota, is very much in the spirit of Mr. Marchionne, who died last year.
But often the carmakers that make the most money are not the biggest. They make the most appealing products and can charge the most money. The German luxury carmaker BMW earned almost as much as General Motors last year, about $8 billion, even though G.M. sold more than three times as many cars.
The arguments in favor of bigness may have less to do with profits than sheer survival.