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Why Fiat Chrysler wants to buy Renault

Why Fiat Chrysler wants to buy Renault
Why Fiat Chrysler wants to buy Renault 01:20

Fiat Chrysler's proposed $40 billion merger with France's Renault would create the world's third-biggest automaker, behind only Volkswagen and Toyota. But there are hurdles.

The offer, which Renault called "friendly," would create a combined company that produces nearly 9 million vehicles per year, leapfrogging General Motors. The possible deal comes at a time of stagnating car sales, with auto demand dropping last year for the first  time since 2009. Demand fell by 0.1% in 2018, compared to an average annual increase of 4.1% between 2011 and 2017, according to Fitch Ratings. And analysts say both companies are weak in China, which is now the world's largest auto market.  

"We are in a slowing market – some say we are on the other side of 'peak car' – and car preferences around the globe are shifting from large trucks and SUVs to small efficient EVs,"  Michelle Avary, head of autonomous and urban mobility at the World Economic Forum, said by email.

Plugging in

Another factor driving Fiat Chrysler's interest in Renault--the latter's expertise in electric and autonomous vehicles. In the U.S., electric car sales are expected to grow to 1.3 million by 2026, up from fewer than 200,000 in 2018, according to IHS Markit estimates.

A deal would also save the combined company 5 billion euros ($5.6 billion) by sharing research, purchasing costs and other activities, according to Fiat Chrysler. Neither company addressed potential job cuts, leaving some analysts to wonder which plants might close. 

Renault said the deal could "improve Renault's industrial footprint and be a generator of additional value" for its alliance with Japan's Nissan and Mitsubishi. Yet questions surrounding that agreement's future are looming given the criminal investigation into the former head of Renault and Nissan, Carlos Ghosn, who denies wrongdoing. 

Ghosn intended to merge Renault and Nissan, but analysts note that deal may have little appeal for the Japanese carmaker because Renault's sales represented just 36% of the alliance's annual revenue.

-- The Associated Press contributed to this report.

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