Fiat Chrysler and Renault: a motoring mega-merger

A proposed merger between car giants Fiat Chrysler and Renault could be good news for both companies. Alex Rankine reports.

949_MW_P07_Shares
Jean-Dominique Senard: low key

The car industry is going through its biggest changes "for 125 years" as the age of internal combustion draws to a close, writes Larry Elliott in The Guardian. That is forcing companies fearful of becoming "museum pieces" into ever- larger combinations. Italian-American carmaker Fiat Chrysler Automobiles (FCA) confirmed on Monday that it is seeking a merger with French peer Renault. The tie-up would create the world's third-biggest carmaker, or the largest if Renault partner Nissan's production is included. Shares in both companies shot up by more than 16% on news of the talks.

A Fiat Chrysler and Renault merger looks good on paper

The deal looks wise on paper, agrees The Economist. The threat from Silicon Valley has created an urgent need for investment in technologies such as electric vehicles (EVs) and self-driving cars. Industry consolidation avoids that expensive work being duplicated pointlessly. Joint development of engines and platforms the base component of a vehicle will also make a big contribution to the mooted €5bn a year in savings. The two firms also complement one another geographically, with FCA strong in America, and Renault's power base in Europe.

The history of car mega-mergers is not a happy one, notes John Gapper in the Financial Times. The FCA-Renault tie-up is almost the same size as the industry's "worst deal failure" Daimler's $37bn combination with Chrysler in 1998, which was eventually dissolved in 2007 "to everyone's relief". Yet the decision to pursue a full merger rather than a looser alliance could prove canny. As last year's downfall of former Renault-Nissan-Mitsubishi alliance boss Carlos Ghosn attests, "alliances that look solid to outsiders often conceal unresolved tensions". It is far harder to unravel a merger.

Ghosn's downfall, as well as the untimely death of FCA boss Sergio Marchionne last year, actually cleared the way to a deal, says Wilmot. Mergers of equals are usually derailed by ego, but plans for Renault's low-key chairman Jean-Dominique Senard to become CEO would help to keep the proposed behemoth on an even keel.

The planned deal leaves Renault's Japanese alliance partner Nissan "in a bind", says The New York Times. Renault executives reportedly kept Nissan boss Hiroto Saikawa "in the dark" about the talks, a slight which will only aggravate Franco-Japanese tensions. Renault and Nissan have too many joint plans for the future of their alliance to be in doubt, reports Julien Bonnet for France's BFMTV. Nevertheless, the FCA merger plan is "not a positive" for Japan's second-biggest carmaker, says TIW analyst Satoru Takada. As its partner bulks up, Nissan's position in the alliance "will be diminished".

Britain's ten most-hated shares

CompanySectorShort interest on 30 AprilShort interest on 1 April
Anglo AmericanMining12.379.54
Arrow GlobalFinancial Services11.611.24
Metro BankFinancial Services11.2811.29
AASupport Services9.789.1
Marks & SpencerGeneral Retailers9.579.55
John Wood GroupOil Services9.42NEW ENTRY
Marks & SpencerFinancial Services9.38.74
Ultra ElectronicsDefence8.248.16
Greencore GroupFood Production8.23NEW ENTRY
IQESemiconductors7.857.73

The list can also highlight stocks that may bounce on unexpected good news when short-sellers are forced out of their positions. Levels of short interest in miner Anglo American have fallen sharply after a surge in iron ore prices. Sentiment has turned against educational publisher Pearson after two of its biggest rivals, Cengage and McGraw-Hill Education, agreed an all-share merger deal earlier this month.

Recommended

The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Shaniel Ramjee: tech stocks, China and Japan – where to find the best returns
Investment strategy

Shaniel Ramjee: tech stocks, China and Japan – where to find the best returns

Merryn talks to Shaniel Ramjee of Pictet Asset Management about where to find the best returns in global markets right now – the continued growth of t…
20 Oct 2020
Cash rich and bored? Be careful what you do with your money
Investment strategy

Cash rich and bored? Be careful what you do with your money

As the pandemic has left many people with more time on their hands but little opportunity to spend, they have been speculating in the markets. But don…
19 Oct 2020
Will fintech change the face of banking?
Alternative finance

Will fintech change the face of banking?

Fancy new apps have become popular for everything from making a payment to buying insurance and shares. Should the big banks be worried? Simon Wilson …
17 Oct 2020

Most Popular

How will we repay our vast debt pile? Do we even need to?
Sponsored

How will we repay our vast debt pile? Do we even need to?

In his recent articles looking at different aspects of the fixed-income investing world, David Stevenson looked at inflation. Today he looks at a clos…
19 Oct 2020
The Bank of England should create a "Bitpound" digital currency and take the world by storm
Bitcoin

The Bank of England should create a "Bitpound" digital currency and take the world by storm

The Bank of England could win the race to create a respectable digital currency if it moves quickly, says Matthew Lynn.
18 Oct 2020
Negative interest rates and the end of free bank accounts
Bank accounts

Negative interest rates and the end of free bank accounts

Negative interest rates are likely to mean the introduction of fees for current accounts and other banking products. But that might make the UK bankin…
19 Oct 2020