Fiat Chrysler share price up 6% after proposed merger with Renault

Italian-American Fiat Chrysler and French Renault are in talks for a possible merger.

Fiat Chrysler share price rose after the carmaker submitted a proposal to merge with Renault. Renault’s stock is also up after considering the possible union. If the merger is completed, it would create the third-largest automaker in the world.

Why does Fiat Chrysler want to merge with Renault?

Fiat Chrysler wants to merge with Renault to create more electric and self-driving cars. Fiat Chrysler said in a statement that the proposed merger would streamline production for the automakers.

‘These discussions made clear that broader collaboration through a combination would substantially improve capital efficiency and the speed of product development,’ said Fiat Chrysler.

Fiat Chrysler chief executive officer (CEO), Mike Manley, wrote in an email to employees about the proposed merger.

‘In Groupe Renault we found a like-minded partner who sees the future as we do. We’ve worked well to get this far, and this would truly be a merger of like-minded businesses, on an equal footing to create a world-leading company,’ wrote Manley.

‘To us, this deal has the potential to add value across the board – for FCA [Fiat Chrysler], Groupe Renault and all our stakeholders as well as for the [Renault] Alliance partners [Nissan and Mitsubishi],’ added Manley.

What will a Fiat Chrysler/Renault merger mean for Nissan?

A Fiat Chrysler/Renault merger could further complicate Renault's current partnership with Nissan and Mitsubishi. The arrest of Renault-Nissan-Mitsubishi Alliance head, Carlos Ghosn, for financial fraud has already strained that union. Takeshi Miyao, managing director of consulting firm Carnorama, notes that a potential Fiat Chrysler/Renault merger could mean Nissan’s influence in the Alliance could decrease.

‘If the Renault-Fiat merger happens and the status quo continues at Nissan-Renault, Nissan's position and influence within the Alliance will fall behind Fiat,’ said Miyao.

Fiat Chrysler’s potential new organisation with Renault still has to be approved by the car companies’ board members.

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