Fiat’s Car Currency

Fiat proposed to Renault

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What's going on?

Not everyone took a break over the holiday weekend: Italian-American carmaker Fiat Chrysler proposed a 50-50 merger with rival French firm Renault on Monday.

What does this mean?

If Renault agrees to ride in convoy going forward, the combined firm would be the world’s third-largest car manufacturer – selling almost nine million vehicles annually and raking in over $190 billion (tweet this).

Fiat shone its headlights on close to $6 billion of money-saving “synergies” down the road. But rather than aggressively cutting costs to deliver this (e.g. via plant closures), Fiat instead hopes to spend its way to improved profit. By investing more into new technologies like electric and autonomous vehicles but spreading that cost across a larger company (we can’t decide whether we like “Fichrault” or “Rencat”), both revenue and profit are likely to be greater than they would be on the individual firms’ current courses.

Why should I care?

For markets: The hunter becomes the hunted.

Renault’s been keen to split gas for some time: it initially pursued a tie-up with larger Japanese competitor Nissan, in which it already owns a 43% stake. But the suit was spurned: Nissan wasn’t convinced Renault could help it reverse out of the deepest profit ditch it’s been in for a decade. Under Fiat’s equal-ownership merger proposal, Renault’s existing shareholders – including the seemingly non-committal Nissan and the seemingly supportive French government, both of which hold 15% stakes – will have a say in how the new company’s run.

The bigger picture: History doesn’t repeat itself, but it often rhymes.

Fiat merged with Chrysler a decade ago. Such deals are a road the company’s traveled before, albeit under its previous CEO, who passed away last summer. In uniting luxury brands like Maserati with the likes of, er, Lada, the combined carmaker could plow on through the storm currently besetting the global auto industry: slowing economic growth and expensive import taxes dissuading consumers from car purchases.

Originally posted as part of the Finimize daily email.

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