Industry News: FCA Rescinds Their Merger Offer With Renault

[William Maley]

Fiat Chrysler Automobile has abruptly pulled back on their merger offer with Renault after the second day of negotiations came to a close. The Wall Street Journal reports that Renault's partner, Nissan declined to support the deal according to sources. During a vote today on the Renault board, the two Nissan representative abstained, raising concerns for both FCA and Renault that Nissan would back out of the alliance.

This, in turn, caused the French Government (major stakeholder in Renault), to not pledge its support of the deal. The government asked for a delay on the vote until Nissan would guarantee that it would continue with the alliance. The falling of these dominos prompted FCA to withdraw their offer.

The move is a heavy blow as FCA had reached a tentative agreement with the French Government on the merger according to two sources speaking to Reuters.

FCA, Renault, and the French Government declined to comment.

We'll update this story if any new details come to light.

Source: Automotive News (Subscription Required), Bloomberg, Wall Street Journal (Subscription Required)

View full article

[Drew Dowdell]

Moved the discussion to here since @William Maley beat me to the story. 

[riviera74]

Wow.  What happens now?  Will Nissan simply acquire/merge with FCA to resolve this?  Or will Nissan simply allow an automotive recession to do the dirty work for them?

[Drew Dowdell]

Nissan is in no position to be acquiring anyone. They're in a worse position than FCA. FCA actually makes some profit. 

[smk4565]

A recession or a 25% tariff on Mexican imports could run FCA deep into the red, and I wonder how much cash they have on hand to survive a down turn of a couple years.

Actually I'll answer my own question.  FCA has 23 million euros cash on hand in 2014 and ended last year with 12 billion euros cash on hand.

Edited June 6, 2019 by smk4565

[Drew Dowdell]

5 minutes ago, smk4565 said:

A recession or a 25% tariff on Mexican imports could run FCA deep into the red, and I wonder how much cash they have on hand to survive a down turn of a couple years.

It'll hit everyone though, not just FCA.  And they'll all have to raise prices.

NPR was doing a story today about how all of the wiring harnesses for cars are built in Mexico... it doesn't matter what brand. 

[smk4565]

11 minutes ago, Drew Dowdell said:

Nissan is in no position to be acquiring anyone. They're in a worse position than FCA. FCA actually makes some profit. 

Some is the key word, on 110 billion euro in revenue, they had 3.6 billion in profit.  That is barely more than a 3% margin, which isn't a lot of room for error and the past few years were banner years for the auto industry.  And that is all while these guys haven't spend a dime on new product for Dodge/Chrysler or electric cars or autonomous cars.

[smk4565]

39 minutes ago, Drew Dowdell said:

It'll hit everyone though, not just FCA.  And they'll all have to raise prices.

NPR was doing a story today about how all of the wiring harnesses for cars are built in Mexico... it doesn't matter what brand. 

It hurts them all for sure,  some just have higher margins or more cash on hand that can weather a storm. 

[Drew Dowdell]

12 hours ago, smk4565 said:

Some is the key word, on 110 billion euro in revenue, they had 3.6 billion in profit.  That is barely more than a 3% margin, which isn't a lot of room for error and the past few years were banner years for the auto industry.  And that is all while these guys haven't spend a dime on new product for Dodge/Chrysler or electric cars or autonomous cars.

 

11 hours ago, smk4565 said:

It hurts them all for sure,  some just have higher margins or more cash on hand that can weather a storm. 

Margins are slim for everyone in the industry.  $3.6b in profit is doing okay. 

[riviera74]

Found something that explains why the merger is off.  Paris is to blame:

http://www.thedetroitbureau.com/2019/06/french-government-blamed-for-collapse-of-fiat-chrysler-renault-merger-plan/