By Adrienne Roberts
Fiat Chrysler Automobiles NV's proposed merger with France's
Renault SA is the latest jolt for the Italian-American auto maker's
U.S. operations, a unit that has seen its parent company change
three times in the past two decades.
Last week, Fiat Chrysler proposed a roughly $40 billion merger
with European rival Renault, a tie-up that if completed would
create a global auto-making giant with nearly 9 million vehicles
sold a year.
Dealers and analysts in the U.S. say the tie-up could have
long-term benefits for Fiat Chrysler's U.S. business, giving it
access to Renault's electric-car technology and a partner with the
global heft to rival General Motors Co., now the world's
third-largest car maker and the biggest by sales in the U.S.
But there are drawbacks. Fiat Chrysler has leaned on profits
generated by the popular Ram and Jeep brands in North America to
prop up the company's weak European business. Fiat Chrysler on
Monday said its U.S. sales rose 2% in May, a gain largely driven by
a 29% increase in sales of the company's Ram truck brand.
Adding Renault would only increase the combined group's exposure
to the continent's long-troubled car market, putting more pressure
on the U.S. to drive profits for the auto-making group, industry
experts say.
Fiat Chrysler's center of gravity also would shift further away
from the U.S. toward Europe and could lead to more management
shuffling, less than a year after Fiat Chrysler's longtime boss,
Sergio Marchionne, died. Mike Manley is Fiat Chrysler's current
chief, but people familiar with the deal say Renault's
Jean-Dominique Senard will lead the newly combined group if the
merger is completed.
A Fiat Chrysler spokesman said it was too early to comment on
the new leadership structure and Mr. Manley's role in it.
"There is yet again another cultural change, and there are
growing pains with that," said Jeff Schuster, president of global
forecasting at LMC Automotive, a research firm.
Five years ago, Chrysler Group was fully combined with Italy's
Fiat SpA, completing the last leg of a merger journey that began
when Fiat rescued America's third-largest car company from
bankruptcy and resulted in Mr. Marchionne fusing together two
financially troubled car companies into a healthier, more global
company.
Before Fiat, Chrysler had already been through immense change,
including a failed merger with Germany's Daimler AG. Then, a
takeover by private-equity firm Cerberus Capital Management LP
ended with its collapse during the recession and a U.S.
taxpayer-funded bailout.
Fiat Chrysler executives say the combination of the two
companies would wring out billions in cost savings by increasing
their economies of scale and could pave the way for Fiat Chrysler
to join the Nissan-Renault-Mitsubishi alliance, a globe-spanning
partnership formerly led by Carlos Ghosn.
Any benefits to Fiat Chrysler's U.S. operations, though, could
take many years to achieve, analysts say, because the merged
company would likely focus on fixing more-pressing problems in
Europe. Still, the combination could change the dynamics of the
U.S. market, where Fiat Chrysler has been historically the smallest
and weakest of Detroit's Big Three car makers.
"Fiat Chrysler will be able to do things they weren't able to do
previously with electrification, autonomy and have the scale to be
cost-competitive," Mr. Schuster said.
Fiat Chrysler's U.S. dealers say adding Renault's stable of
brands to the sprawling Fiat Chrysler lineup could create more
complexity, rather than synergies.
Wes Lutz, president of Extreme Dodge, Chrysler, Jeep, Ram in
Jackson, Mich., said when Mr. Marchionne combined Fiat and
Chrysler, he brought two relatively unknown brands to the U.S. --
Fiat and Alfa Romeo -- and neither one gained much traction.
Dealers felt the money spent to expand those brands could have been
used to improve their existing models, he said.
Yet small-car models and valuable electric-vehicle technology
that Renault could offer Fiat Chrysler could be helpful if gasoline
prices spike again, Mr. Lutz said. Fiat Chrysler killed off many of
its sedan models in recent years as those kinds of cars fell out of
favor, and placed more focus on SUVs and trucks. The
fuel-efficiency of its U.S.-sold vehicles has long trailed
competitors and is among the worst in the industry.
Any deal between Fiat Chrysler and Renault faces numerous
hurdles. Fiat Chrysler needs to convince the Renault board and the
French government, which owns a 15% stake, that a merger would be
the best route for Renault, a symbol of national pride in France.
The Renault board is expected to meet Tuesday on whether to enter
exclusive talks.
Renault's alliance with Japan's Nissan Motor Co. and Mitsubishi
Motors Corp. is also a complicating factor. The Renault-Nissan
relationship has grown strained since Mr. Ghosn's arrest late last
year on charges of financial misconduct, and Nissan's backing will
be important for getting a merger deal done. Mr. Ghosn has denied
any wrongdoing.
The addition of Fiat Chrysler to the alliance would enhance its
scale and purchasing power, creating a massive partnership that
would dwarf GM and Ford Motor Co. in global sales, said Richard
Hilgert, an analyst at Morningstar Inc.
It also could create complications. Nissan and Fiat Chrysler
compete against each other in the U.S. on a number of fronts
including big pickup trucks, and negotiating how that relationship
would change and how to reduce overlap won't be easy, analysts
say.
"The knife could come out," Mr. Schuster said, if the two decide
they don't need as many models.
Write to Adrienne Roberts at Adrienne.Roberts@wsj.com
(END) Dow Jones Newswires
June 03, 2019 10:27 ET (14:27 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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