HOW FIAT-RENAULT PACT CAME TOGETHER
A few hours after revealing a combination that stands to reshuffle the global automotive industry, John Elkann appeared at Bocconi University in Milan to tout the virtues of a merger between Fiat Chrysler Automobiles and France’s Renault.
It’s a familiar venue and a familiar line for the leader of Italy’s preeminent industrial dynasty.
A decade earlier in January 2009, Elkann had stood in the same place to announce Fiat’s takeover of Chrysler. And like last time, the underlying motivation is the same — to build scale that helps insulate carmakers against the shocks raining down on the industry.
The types of impacts, however, are new: electrification, autonomous driving, a new breed of drivers questioning the need to own a car, and rivals that a decade ago hardly existed, such as Alphabet Inc.’s Waymo or Tesla Inc.
But now as then, the urge is to make an audacious bet or risk being swept away by the wave of change, Elkann said.
“We acted with courage, as we did in 2009,” he said Monday in his first public comments after Fiat Chrysler announced the deal with Renault, a 50-50 ownership through a Dutch holding company that instantly won the blessing of investors in both companies and a warm response from other major stakeholders, including battle-hardened French workers.
But one element was notably different, or rather, absent: The push for consolidation had been championed for a decade not just by Elkann, but even more relentlessly by Sergio Marchionne, the larger-than-life Fiat Chrysler chief executive officer who died last July following an illness.
The two made an odd couple, the hard-charging Marchionne and the boyish, floppy-haired Elkann.
But they were bound in a common mission, touring the globe with their message that carmakers should join forces and embrace combinations rather than what they saw as wasteful duplication of the same technologies. Following a frosty reception for their idea across the Atlantic, Marchionne ended up residing much closer to home, just across the Alps. Elkann, now flying solo, shuttled back and forth between Turin and Paris on his private jet to get the deal of his lifetime across the finishing line.
This story is an account of people involved in the negotiations for the planned combination of Fiat Chrysler and Renault, a merger that aims to create the world’s third-biggest carmaker.
They spoke on condition of anonymity discussing private matters. The companies declined to comment on details of how the transaction came together.
For years, Fiat Chrysler had made no secret of the fact that it wanted to play an active role in consolidation.
Renault, for its part, also realized that it was too small alone to withstand rising market turbulence.
The carmaker is a notable force in electric vehicles and has a strong link to Asia thanks to its alliance with Japan’s Nissan Motor Co., but it’s absent in the crucial U.S. market, an open flank that a link-up with Fiat Chrysler could shore up.
URGENT MERGER MISSION
There’s another element that Renault shares with Fiat Chrysler: the loss of its biggest champion of growth and expansion.
Carlos Ghosn, the carmaker’s former CEO and the head of the Renault-Nissan alliance, had fallen from grace since his arrest in November in Tokyo on allegations of financial misconduct (which Ghosn denies). As a consequence, the future of the alliance began looking in peril, as Ghosn’s time in detention wore on and none of the executives who remained had the clout to force the consolidation plan he had plotted.
Nissan’s resistance to embrace a full merger between the partners, coupled with a steep decline in earnings at the Japanese manufacturer, heightened Renault’s urgency to push ahead on an alternative path.
Jean-Dominique Senard, a well-connected French executive hand-picked by the French government from tiremaker Michelin, replaced Ghosn as Renault chairman and quickly realized the magnitude of the task on hand to repair frayed relations with Nissan.
But by the end of April, it was clear Renault’s push for a fullblown merger with the Japanese partner had reached a dead end.
PROMISE OF SYNERGIES
Looking for another option, Senard found an eager partner in Elkann. As talks about a possible combination picked up speed in recent weeks, the two men frequently called one another on their mobile phones and visited each other to discuss the finer points of a possible deal over meals.
Elkann, who spent parts of his studies in France and speaks the language fluently, isn’t a stranger to the country’s car industry.
For some time, Fiat Chrysler had entertained a partnership with PSA Group, the maker of Peugeot and Citroen cars.
But the prospect of getting such a deal done proved too arduous. PSA would mean major job cuts and plant closings — a turnoff for labour and politicians who will ultimately pass judgment on any deal.
In the end, talks fell through abruptly in mid-April, giving Senard and Renault another stab at forging ahead instead.
Initial contact with Elkann quickly turned into a more formal conversation as both sides realized the complementary nature of a combination. Renault promised a fleet of electrified cars, and Fiat Chrysler access to the U.S. market.
It’s a prospect that Fiat Chrysler played up when it made the announcement on Monday, touting the promise of joint annual synergies to amount to more than five billion euros (US$5.6 billion), coming from areas such as purchasing power.
Code-named “Newton,” talks quickly progressed over a set of dinners involving the two executives, who managed to get the accord worked out at a crucial date during which they agreed on main terms.
With voting already underway for elections across large swaths of Europe in the latter part of last week, the parties agreed to wait until after the outcome of the elections.
Both in Italy and in France in particular, the political stakes were high, with the rightist League party of Deputy Premier Matteo Salvini and France’s Marine Le Pen seeking to solidify their positions.
The French government, Renault’s biggest shareholder, quickly rallied behind the idea of the two companies joining forces.
Finance Minister Bruno Le Maire met last week with Senard to discuss the proposal, government spokeswoman Sibeth Ndiaye said on BFM television Monday, saying that Europe needs to have what she called “industrial giants.” On Tuesday, Le Maire said the French government wants safeguards on maintaining industrial jobs in France and “zero” site closures.
Renault’s Senard, who is leading the merger talks, “has to come back to me on the guarantees he has obtained from Fiat on Renault’s footprint in France,” he said on RTL radio.
Salvini, too, who initially threatened to intervene, later gave his blessing — but only after upgrading Fiat’s no plant-closing pledge to a promise not to cut jobs, telling Agence France-Presse he trusts the deal “will safeguard every job in this country.”
The Chrysler experience encouraged us to look at what we can do together. Fiat was founded 120 years ago, Renault too.
ROADBLOCKS AHEAD
Since Marchionne first published his iconoclast views in “Confessions of a Capital Junkie” in 2015, Renault was seen as one of the best fits for Fiat in terms of cost saving and sharing investments.
That doesn’t mean there aren’t hurdles. The carmakers are moving ahead without Nissan and Mitsubishi Motors Corp., the other member of their troubled alliance.
Fiat has conditioned the merger talks on Renault agreeing not to pursue a transaction with Nissan in the short term, though the Japanese company would be welcome to join the merged entity later.
Senard will get to feel the Japanese temperature this week when he travels to Asia for a board meeting of the Renault-Nissan alliance, the first time since Renault’s partner of two decades was told of the pending deal with somebody else.
Elkann, for his part, touted his company’s track record in pulling off the integration of two companies.
After all, Chrysler was the castoff of another failed merger, with Germany’s Daimler, which struggled in vain for years to make the combination work.
Speaking on Monday in Milan, he said the success of that combination, coupled with a common heritage, are two of the main ingredients that made Fiat Chrysler push ahead with Renault.
“The Chrysler experience encouraged us to look at what we can do together,” Elkann said.
“Fiat was founded 120 years ago, Renault too. My family has been associated with the auto industry since then.”