Now the fine powdered debris has settled, I thought I’d gather up some third party opinions on the mooted Renault/FCA merger.
I’ve decided to amalgamate three sources of information. They are the Financial Times, the New York Times and Autocar. My own view is that the merger is a re-run of the value-incinerating union of Chrysler and Mercedes twenty years ago. But what do the other commentators say if Renault and Fiat end up fused? A car crash or a marriage made in Denver?
John Gapper in the FT (May 30, 2019) takes a clearly positive view. He calls mergers among car-makers “inescapable” (but so is death). The sub-editor at the FT picked a choice Gapperism as a section header: “Amalgamations are difficult to make work, but they offer a chance to share costs and brand loyalties.” I wonder if Mr Gapper is awake when writing this. “Sharing brand loyalties” is some form of oxymoron. I can’t begin to imagine what he thinks it means. Maybe it’s analogous to wife swapping which would be “sharing partner loyalties”, I suppose. Moving on.
Gapper identifies the following advantages in a merger: they can share investment in electric vehicles and autonomy; they can have better economies of scale (point one re-stated, no?) and it’s better than an alliance. Gapper states that alliances “conceal unresolved tensions and factionalism” and, it is implied, mergers do not. Rover? BLMC? Ford and Volvo? GM and Saab. Gapper concludes by saying that if mergers are hard then isolation is harder. Gapper plainly wrote his article before breakfast.
If we move to the New York Times (May 31, 2019) reporters Jack Ewing, Neale E. Boudette and Ben Dooley discuss the matter in more he-said/she-said terms: “How Fiat + Renault could rule the world. Or flop”. The pros are listed as 1) the merger gives each firm new markets; 2) they compliment each other in terms of products and reason 3 is just a declaration that if it works the merger will be great so that’s not a reason at all, it begs the question.
On the downside the NY Times team says 1) there are risks to Renault’s alliance with Nissan (the Japanese hate the idea, apparently) 2) car mergers usually fail (see above) and 3) the benefits of savings could be very small and 4) the resultant company might be unmanageably big. Simply, the most profitable companies are not the biggest ones – BMW made more money than GM last year.
On balance, the writers sum it up by saying a merger might just be a matter of mere survival. Mere survival really does not sound like a compelling reason to do something that might threaten your existence.
Finally, we turn as turn we must to Ronan Glon in The Autocropley. Glon begins by reminding us that a Renault-Nissan + FCA sum yields 9 million car sales annually (is that any more car sales than is made by the firms individually?). Those economies of scale, as above, relate to saving money on autononononomous platforms and electric vehicles. Has anyone worked out the marginal saving on the fifth, sixth, seventh, eighth and nine millionth car? Put another way, how much more money is saved by the last few million extra cars?
Julian Rendell, also at The Autocropley, offers some further points. Rendell wins respect for getting the whole thing boiled down to fit in the opening paragraph (impressive): “The mega-merger of Fiat Chrysler Automobiles (FCA) and Renault, poised to create the world’s biggest car group, has been welcomed by analysts. But the threat of factory closures, cost savings that struggle to emerge and the complications of making an unwieldy conglomerate workable are just three of the major risks.” We also learn that this putative 9 million units does not include Nissan or Mitsubishi – so the total number of cars involved might be 15 million.
Unique among the commentators, Rendell says the merger would allow Fiat to sell a full range of cars (as in supermini up to saloon plus all the other niches). True, but nobody will want them I respond. The AR Giulia is arguably a perfectly nice and capable car where the development seemed unhindered by much of the usual Fiat cheese paring and lunacy. But nobody wants those, not in huge amounts.
By the time Fiat’s managers have finished pasting a Renault platform with caveats, requirements, cost-cuts and early lunch receipts they are well on the way to mediocrity. Think Croma on a Talisman platform. Superb. And maybe it’ll sell in Minnesota and New York too. Think Ghibli on a Talisman platform? It could happen.
Rendell turns it the other way too. He writes that Renault could re-enter the luxury market ‘through’ Alfa Romeo and Maserati. Rendell used the word “through” in some new and very flexible sense, I feel. As noted, AR and Maserati are pleasing disappointments. I don’t see evidence that putting a big Renault next to a Maserati is going to help the French car sell. No one will understand it.
Having got this far, I feel the big winners in any merger that goes ahead will be the executives who plan it and reap performance bonuses. The long term costs will be borne by Renault and Fiat employees and the cities where they work. I look at all these articles and see the same trope as you see played out in the business papers and business reports: business as sport.
There seems to be little moral or ethical sense in any of these items, just a matter of entertainment and hypothesising. DTW is unfraid to spell it out: the Renault-FCA merger is a car-crash disaster mess catastrophe. Swerve to avoid.
19 thoughts on “Romping Home Into Eighth Place”
Advice well taken, Richard: the deal is off, according to the Radio 4 Today programme this morning. Apparently, FCA thinks the French government, Renault’s largest shareholder, is hostile to the proposed merger. A rare example of government interference in the commercial world that is to the good?
This was always going to be a sensitive subject in France. Renault is no longer a “Régie Nationale” and hasn’t been for quite some time (over 20 years) but there is too much at stake in the current climate.
Laurent: I think so too. It´s not just any old company. And who´d want to let a merger be the apparent cause of job losses? I am surprised the idea got past the point where it was brought up over canapés.
Quite. Imagine the “gilets jaunes” protests that would have been caused. Macron’s star has fallen precipitously recently and, after all the hype, he’s just another politician.
Looks like this merger not going to happen.
I’m always skeptical of these things. The only sure things on these mergers is that the executives who engineer them will personally get a huge financial benefit. The claimed other benefits are always ethereal (at best).
My own view is that these corporations would be well advised to structure themselves so that they have maximum flexibility to respond to an unknown future, with unknown future market shifts, unknown but unpleasant future surprises like global economic downturns and oil shocks, and unexpected political turmoil.
I’m not sure this merger helped or hurt on that score.
Inadvertently to the good, I should have made clear, in that the French government’s objection is more likely to be based on prospective domestic factory closures and job losses, rather than the simple fact that FCA is a basket case.
The car is, of course, a Talismam, of which there is a rather handsome estate version that had escaped my attention until yesterday:
Imagine the Talisman with a Dodge, Maserati and Chrysler body on top. That would have been brilliant. A simple badge-swap could have made it a Lancia as well!
I don’t know how widely this felt, but I have a great dislike for inauthenticity. For example, the Mazda MX-5 based Fiat 124 convertible is a good looking car and I probably prefer its looks to the MX-5. However, I could never bring myself to buy one because I know that it’s really a Mazda masquerading as a Fiat. I note that Fiat has dropped it from its UK range after less than three years and I’ve only ever seen one on the road here.
Does the same apply to a Porsche Macan and the Audi Q5? Before you answer, I suspect the response is much less so.
The commentators such as Gapper have little feel for this kind of thing. Look at what platform sharing did to GM, which eventualy killed of Olds, Pontiac and Saab having been unable to convince buyers there was a real difference to justify these cars. On paper the Fiat roadster sounds super but really it offered little over the Mazda which any car enthusiast knew was the lead car. An enthusiast´s car was a terrible choice for a shared platform. Presumably there are other niches where customers care a lot less. Even if it takes a few years, customers twig inauthenticity and Fiat/Renault would have not had long before thinly-made over models would have been axed.
Hi Richard, you guessed correctly. The same question would apply to the vast majority of VW Group vehicles, but I guess the answer is something with joint development and, critically, ownership. It’s hard to decide exactly which is the “authentic” model, in this case.
What about the latest BMW Z4 and Toyota Supra? Is it a Toyota in BMW suit, or vise-versa?
In the case of BMW I expect BMW will be very much more deliberate in their tweaking of the car. And with each tweak there comes the cost that sharing is supposed to avoid.
Read your excellent summary before I learnt the deal was off in the comments – it’s early morning here. Just as well. The French government was up to its usual fandango that never seems to reflect reality no matter the dope in charge and his supposed brand of philosophy, and Nissan, well they were going to scarper just as soon as possible because Saikawa wants no investigation of his stab-in-the back tactics without even confronting Ghosn first. And despite no mention of it, the US would likely have dreamt up some reason to nix the FCA-Renault merger, arguing about FCA and American jobs lost or anything lacking logic that confirms the US idea that they are in charge of everything worldwide no matter what it is.
So, I’m assuming that Renault and Nissan will separate their alliance somehow, FCA will slowly wind down European operations (they’ve already flogged off Magneti-Marelli), and that those in charge of making sure the Agnellis are super-rich might well flog off RAM and Jeep to the Americans, where lack of pure EV expertise hardly matters – Ford is in the same position, hybrids only.
CAR used to argue that consolidation was in the works for survival 40 years ago, but present day seems to favour dissociation, if anything, led by Trump and his gang of bumbleberries who cannot even get a free trade deal done with their neighbours, while lecturing everyone else on how they should behave.
Nissan makes at the very best, mediocre product, and had prospered by flogging vehicles to customer with low credit scores while providing the finance. They’ve recently tried going legit in the US by cutting incentives and have been rewarded with a 10% sales drop. Is there an aspirational Nissan product of any kind? The GT-R is ancient. Hyundai/Kia will take up their slack no problem at all.
Renault’s future you can speculate on for yourselves.
Who said ‘mergers don’t work’?
I suspect it was all about having a sniff round the accounts and product plans, not that it probably ever got that far.
My tip for the next merger: BMW and JLR, applying the principle that the participants in most recent auto industry mergers occupy the same market sector, are underachieving, and think they need to be larger than they are.
This type of business transaction is generally called “Mergers and Acquisitions” incorporating two legal terms defining whether the two entities form a new “super-entity” or if one entity absorbs the other. In commercial terms, the distinction isn’t so clear cut since in either case brands may disappear or be repurposed or new brand identities can be created. Consolidation can also result in unhappy employees and/or shareholders. Opinions on the nature of the transaction would therefore differ depending on whom one asked.
The commercial conceit of “merger of equals”, suggesting happy campers and winners all around is not a legal term, and is a rather utopian and elusive conceit.
To further clarify my answer to Dave, a transaction could legally be called a merger, but commercially perceived as a de-facto acquisition a.k.a. a takeover. One obvious relatively recent example comes to mind.
I like that idea Robertas, IMO JLR is worthy of being saved, and the BMW brand would be better off focusing on ultimate driving machines and espousing traditional teutonic values.
I myself am not a big supporter of this merger idea. But I like to point out that FCA is doing rather well and Renault-Nissan can use some collaboration in certain areas. For example with pick-up trucks in USA. For example with the Alpine SUV. Most of you are sometimes too blinded by stereotypical images about Italians to be able to think with sense. Please also be less blinded by patriotic nonsense. JLR is a horribly mismanaged money losing operation. I don’t believe BMW is stupid enough to get involved and absorb the inevitable losses the first few years. Especially since BMW was also losing money recently.
All of my critiques are based on a view of the companies not their land of origin. I think the Chrysler part of FCA is doing well because it has focuse on trucks, too much so like the other US companies.
Without wanting to be provokative, would it not be reasonable to suggest that the socio-economic problem of Italy are mirrored in the problems of Fiat? And the same might be said for France and the US. Put another way, how do we distinguish between a fair socio-cultural analysis of a car conglomerate and mere prejudice. I think we can do this. At least I try.
When car buyers are blinded by the badge it is inevitable that the generalist manufacturers will suffer. And go in search of a merger. Or will they? And indeed, should they?
The Bayerische MullWagen and Audi are having styling issues that give concern even to die-hard supporters of the marques. Ugly doesn’t sell apparently. Profit margins are high on the units sold though, so all seems well. Can it last forever ?
I remain hopeful that a generalist manufacturer will produce an attractive alternative to a Toyota Prius. Toyota « do » low emissions vehicles at a fair price. But they are willfully ugly.
An attractive, appropriate, affordable vehicle to face the emissions challenge would perhaps be enough to keep a generalist relevant. Leading, not following. If not, at least it would give bargaining power in any alliance discussions.
A merger of FCA and Renault would have done Renault little good I feel. Chrysler are the automotive Black Widow par excellence, having nearly consumed first Mitsubishi and then Daimler Benz. Fiat have no apparent development strategy. Such a waste..
Persevering with the Nissan alliance seems preferable, as long as a hole deep enough to bury the Ghosn affair in can be found.
Renault already have history with the Americans of course with AMC/Jeep. Chrysler enacted the take over of the latter, and AMC perished.
Their Eagle range lives on in spirit in SUV products from DB, BMW and others. High-riding 4X4 sedans, station wagons and coupés appealing to niche customers.