Frosty relations between France’s Macron and Italy’s Salvini could scupper talks over £29bn merger.
That there is an economic case for the proposed €32.6bn (£29bn) merger between Fiat Chrysler and Renault goes without saying. A link between the two companies to form the world’s third-biggest carmaker after Volkswagen and Toyota has always made a lot of sense. If the deal is scuppered, it won’t be due to a lack of business logic; it will be because politics gets in the way.
There are two big arguments in favour of the deal. The first is there is a global glut of automotive capacity that is already forcing companies to cut production, close plants and lay off workers.
The second is the age of the internal combustion engine is drawing to a close. Technological change has meant progress being made towards autonomous, self-driving cars, while the need to combat the climate emergency has forced car companies to think about a new generation of electric-powered vehicles.
These changes – the biggest in the industry for 125 years – leave companies in a bind: they either have to come up with the massive investment required to deliver the cars of the future against new rivals such as Google’s Waymo, or become museum pieces. The tie-up between the Italian-American Fiat Chrysler and the French-Japanese alliance of Renault, Nissan and Mitsubishi is primarily about generating economies of scale in order to save €5bn a year that would be available for R&D and product development.
This is a hefty sum to make from efficiency savings and there has to be a suspicion that the merged company would also look to take costs out of the business by getting rid of excess capacity. The French government, which has a 15% stake in Renault, is certainly alive to this possibility, which is why Bruno Le Maire, the finance minister, is seeking explicit guarantees there will be no job losses.
That’s one potential political complication. Another is that Matteo Salvini, Italy’s deputy prime minister and the leader of the far-right League, has expressed a desire to take a stake in the new company. This would be no problem were relations good between Paris and Rome, but they are not. There is absolutely no love lost between Salvini and the French president, Emmanuel Macron. That, coupled with the fact car companies tend to be national virility symbols, suggests the negotiations will not be trouble free.