The proposed Fiat Chrysler-Renault merger might not save the two companies as much money as they say, according to industry veterans.
Earlier this week, Fiat Chrysler proposed a merger with French carmaker Renault. While the deal still has to be ratified, FCA dangled a huge incentive for the tie-up: savings of up to $5.5 billion in synergies. That’s where companies share technology and platforms to drastically reduce their research, development, and operational costs.
That’s a big number and very likely to push this deal through on its own despite France’s requirements and Nissan’s tepid response. But industry analysts are saying that number might be a pipe dream as previous mergers have shown.
Analysts speaking to Reuters first urge caution with big mergers like this, quoting the failed combinations of BMW and Range Rover in 1994 as well as Daimler and Chrysler in 1998.
They also point out the Renault-Nissan-Mitsubishi alliance, which is as close as you can get to a merger without actually combining the two companies, didn’t result in nearly as much cross-platform sharing as initially expected. Only 35% of vehicle platforms are shared between Nissan and Renault, down from an initial target of 70%.
Finding that $5.5 billion gets even more difficult with France involved. As the French government owns a significant stake in Renault, France has issued several demands before giving their blessing to the proposed merger. One of those requires that no blue-collar worker lose their job while another requires that no plants will be closed.
Despite this, the Renault board will still likely accept the proposal. The current industry trend toward autonomous and electric vehicles is straining the coffers of even the most successful carmakers, and mergers are seen as the best way to reduce those costs. This is especially important for Renault and Fiat as they both rely on small car sales in Europe, a segment with already thin margins that cannot withstand the added cost of an electric powertrain.
Even if the proposal is accepted, it will take many months for the merger to complete and perhaps even years before the combined company sees any synergistic benefit from their disseminated technologies.