Italian carmaker Fiat Chrysler has proposed a merger with French firm Renault in a potentially “transformative” partnership for the automotive industry.
A global automotive leader will be created if the firms merge, with 8.7 million vehicle sales.
The new company would be split 50-50 by Fiat and Renault shareholders and be based in the Netherlands.
The partnership would create the world’s third largest carmaker behind Volkswagen and Toyota, with General Motors falling to fourth in global rankings.
Based on last year’s takings, its annual revenue would be nearly £150bn with an operating profit of more than £8.7bn.
The French firm has said it is mulling over the deal; shares in both companies rose following the statement.
The deal is attractive for Fiat, as Renault already has a strategic alliance with Mitsubishi and Nissan. Renault currently owns 43.4% of Nissan’s shares and Nissan owns 15% of Renault.
Exciting but expensive
The future of cars is exciting, but expensive. The trend for carmakers to unite has accelerated as they are under pressure to alter business models to be more profitable.
The disruption has come from electric-car firms like Tesla and technology companies including Uber, who have gone from strength to strength in recent years.
This, along with stricter emissions rules and technologies like autonomous cars, has meant the automotive industry must scramble and take opportunities where it can.
A Fiat-Renault merger would dampen the high development costs of tech like electric and autonomous vehicles. It would aim to save £4.4bn a year by sharing such costs.
Another carmaker looking to shake things up is Jaguar Land Rover, who has been named as a potential buyer for ride-share app, Addison Lee. This a tactical move to enter the growing ride-share platform market.
A 2017 report from Capgemini indicated that 34% of drivers felt that ride hailing or car-sharing were viable alternatives to vehicle ownership. But people will always want cars; 56% still considered it complementary to car ownership, not a direct replacement.
Need to share
Talks are also reportedly under way over UK government to support a shared £1.7bn battery factory, which could be Britain’s answer to Tesla’s huge battery facility in America’s Nevada desert.
The discussions are understood to involve several carmakers in Britain. A shared factory would enable manufacturers to reduce the large upfront cost that would arise if each business were to build their own factory.
Domestic battery production is crucial for when industry switches to electric vehicles, largely because of the costs and risks associated with transporting batteries.