Proposed merger between Fiat Chrysler and Renault will make it the third largest automaker in the world

In the race to build electric vehicles and self-driving autos, Fiat Chrysler has proposed a merger with French automaker Renault which will make the new entity the third largest automaker world-wide.

With the merger, some 8.7 million vehicles will be built passing up General Motors to put it in third place behind Volkswagen and Toyota.

As far as stocks go, shareholders will be splitting ownership in the newly formed company and on the news of the possible merger today, shares for both companies rose over 10 percent. Investors were enthusiastic in the European trading which pushed Fiat Chrysler shares up 11% and Renault 14%.

The offer by Fiat Chrysler to merge with Renault, which is located outside Paris, was welcomed by Renault ’s board.  Renault and its board members said it will look at the proposal with interest.

The savings would around $5.6 (USD) billion yearly for the merged companies as they share in research, purchasing cost and other development activities.

The two companies complement each other in the automating market in that Fiat Chrysler is stronger in the US and the SUV market while Renault’s strength is in Europe especially with their developments in electric vehicles. Their combination will make the new company’s worth in euros around $40 billion.

The big question is who will run the new company. History has shown it is difficult when companies of equal strengths merge as in the 1990s in the case of the merger between Daimler and Chrysler which collapsed after nine years due to cultural differences in the infrastructure and to recriminations.

Renault is also in alliance with Nissan and Mitsubishi. Renault had wanted a merger with Nissan but the deal fell through when Nissan’s CEO at the time was arrested for financial misconduct charges in Japan. Never-the-less, Renault maintains an alliance with the two Japanese companies and Fiat Chrysler says this alliance would be strengthened by the merger but there has been no clarification by the Japanese companies on their position as far as being tied to a larger partner which the merger would create.

Fiat Chrysler says there would be no plant closures if the two companies merge but gave no comment as to whether there would be any job cuts. The French government which owns 15 percent of Renault says it wants to study the conditions of the deal as well in regards to working conditions for its employees and also as far as Renault’s industrial development.

The French auto worker’s union, the CGT union, gave a warning against any cuts if the merger happens and is asking the French government to step in and block workers’cuts should the deal go through. 

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