Pros and Cons of FCA - Renault Alliance

From Detroit Free Press article by Mark Phelan, March 29,2019:

Fiat Chrysler may have picked the best possible partner and future-proofed itself by allying with Renault. Despite that, the deal leaves plenty of challenges and raises new questions.

A week ago, a hungry Chinese or Indian automaker seemed a likelier mate for FCA than Renault. The fear was a rapacious wannabe would make a too-rich-to-refuse bid for FCA, then strip its acquisition of brands and technology without regard for the company’s U.S.-based manufacturing, engineering, design and employment.

Photo by Harold CUNNINGHAM and Kazuhiro NOGI / AFP)HAROLD CUNNINGHAM,KAZUHIRO NOGI/AFP/Getty Images (Photo: HAROLD CUNNINGHAM, AFP/Getty Images)

The reality today is a 50/50 partnership, and Renault’s history suggests it plays well with others, despite current strife in its alliance with Nissan and Mitsubishi.

The proposed merger, which Renault’s board supports, would give FCA access to electric vehicles and other technologies the Italian-American automaker gave short shrift. It makes FCA a heavyweight, an integral part of a bigger automaker than GM or Ford, and potentially a cornerstone of the largest automaker the world has ever seen. It’s an industry-changing deal that would delight FCA’s late CEO Sergio Marchionne, who enjoyed few things more than flouting convention.

Renault was one of the first automakers to embrace a full range of electric vehicles. (Photo: Renault)

Members of the Agnelli family, who founded Fiat more than a century ago and had the vision to risk everything and dispatch Marchionne on a long shot attempt to save Chrysler when other automakers shied away in 2009, are expected to be the new company’s largest stockholders.

The best laid plans ...

That first-glance reading of the deal sounds peachy, but remember: A partnership that looked just as good on paper became a nightmare and nearly destroyed Chrysler in less than a decade when ego and insecurity scuttled DaimlerChrysler, the auto industry’s last “merger of equals.”

There was fault on both sides when DaimlerChrysler cratered. There must be vision, courage and cooperation by all for Fiat Chrysler Renault to succeed. A catchier name would be fine, too.

Renault brings expertise building small, fuel-efficient cars like the 2019 Clio to the merger. (Photo: Renault)

What each brings to the party:

• FCA delivers strong brands with premium pricing and growth potential — Jeep, Ram, Maserati, Alfa Romeo — and a small-car mess in Europe.
• Renault’s car business in Europe gives pickup- and SUV-dependent Chrysler insurance against a sudden change in consumer preferences or fuel prices.
• Renault is a leader in the race to develop zero-emissions electric vehicles.
• FCA’s work with Google’s Waymo self-driving car team could help Renault with the auto industry’s other mega-buck challenge: self-driving cars.

FCA and Renault didn’t shy away from counting their chickens, promising billions of dollars in savings from combined research and engineering, shared parts and systems and more. FCA-Renault — the sooner we get a name, the happier we’ll all be — would be second largest in Europe, the Mideast and Africa, No. 4 in North America and the biggest in Latin America.

Other pros and cons

Pro

• Working with Renault could boost income from Fiat’s struggling European car business.
• Jeep is a premium brand with a strong global image and room to grow. Every automaker would love to own it.
• FCA’s Maserati luxury brand has shown signs of life, with several profitable models, and new vehicles coming.
• FCA and Renault have little overlap in vehicles or the countries where they sell them.

The Jeep brand aims to increase sales around the world. (Photo: FCA US LLC)

Con

• The Fiat brand remains weak even in Europe.
• Renault and FCA are minor players in China, a vital market.
• FCA’s Alfa Romeo spent lavishly developing a couple of great vehicles — the Giulia sport sedan and Stelvio SUV — but has very little to show for it so far.
• Nissan’s Infiniti luxury brand has failed to establish a clear identity in 30 years. In concert with Alfa Romeo’s stumbles, one might ask whether anybody at FCA, Renault or the rest of the Alliance Renault leads knows how to run a luxury brand.

Profitable vehicles like the Ram 2500 pickup strengthened Fiat Chrysler as it sought a partner. (Photo: Mark Phelan)

The honeymoon could be short

The deal could cement Renault’s position — in concert with FCA — as the senior partner in the world’s largest automaker, the Renault-Nissan-Mitsubishi Alliance. The Alliance was the world’s largest automaker last year with more than 10 million sales.  Adding FCA could raise that to 15 million, literally millions of vehicle sales ahead of whoever’s in second place.

A successful merger with Renault would make FCA a de facto member, and formal membership seems inevitable, but the Alliance’s future is unclear.

Renault leads the Alliance because of a sweetheart deal it made bailing Nissan out when the Japanese automaker nearly went out of business 20 years ago. Nissan chafes at that because today it sells more cars and makes more money than Renault.

After years of smooth operation, the Alliance started showing cracks last year, when Nissan had its former CEO and onetime savior, Renault CEO Carlos Ghosn, arrested on charges of tax fraud. Since then, Nissan management has resisted several proposals by Renault, reportedly including a full merger with the French company.

The Renault Nissan Mitsubishi Alliance has been successful, but is suffering from stress between Renault and Nissan. (Photo: Renault)

Adding FCA to the mix could strengthen Renault’s hand, or shatter a partnership that depends on goodwill as much as it does votes on the board of directors.

Nissan executives appear to be the big losers. In one fell swoop, they’ve gone from a position of strength as they fought for more equal status in the Alliance to an intransigent junior partner burdened with high incentives and too many fleet sales, classic errors we recognize all too well in Detroit.

Nissan’s strongest card appears to be a successful Chinese operation that dwarfs FCA’s presence in the world's largest car market.

Nissan sells around 1.5 million cars a year in China. It outsold its Japanese archrivals Toyota and Honda for years, but Toyota is likely to move ahead this year, said Michael Dunne, CEO of ZoZoGo, a consultant specializing in China.

Renault and FCA must create a face-saving way for Nissan to accept the new status quo. The French automaker officially controls Nissan, but a rebellious partner could ruin the Alliance, and slash the benefits FCA expects from merging with Renault.

Another potential hurdle: The French government owns a chunk of Renault, so political rather than business considerations often influence investment and employment decisions. Chrysler’s proposal for the merger seemed to eliminate that, but it’s unlikely France will surrender its “golden share” easily.

Contact Mark Phelan: 313-222-6731 or mmphelan@freepress.com. Follow him on Twitter @mark_phelan. Read more on autos and sign up for our autos newsletter.