Fiat Chrysler proposes merger with Renault to become third biggest carmaker in world

Italian-American firm Fiat Chrysler has proposed a merger with French company Renault which would create the third biggest carmaker in the world.

The tie-up is aimed at saving billions of dollars for both companies as the car industry moves towards electric and autonomous vehicles.

In a statement on Monday, Fiat Chrysler Automobiles (FCA) said the merged company would be 50 per cent owned by FCA shareholders and 50 per cent by Renault shareholders.

The proposal indicated that Renault’s existing alliance with Japan’s Nissan and Mitsubishi – a looser arrangement than a merger or acquisition that allows the firms to benefit from economies of scale while maintaining separate coroporate structures – would continue.

The 20-year alliance has come under strain recently due to the arrest of its former chairman Carlos Ghosn on financial misconduct charges in Japan.

The Renault-Nissan-Mitsubishi alliance is collectively the biggest maker of passenger cars in the world.

Renault would not comment on the Fiat Chrysler proposal until after a special meeting of its board on Monday morning to discuss the merger idea.

The merged company would produce 8.7 million vehicles annually and save €5bn (£4.4bn) for the companies each year by sharing research, purchasing and other activities, the FCA statement said.

The deal is not believed to involve plant closures but the statement did not address potential job cuts.

The French government, which owns 15 per cent of Renault, is favourable to the idea of a merger with Fiat Chrysler but wants to study the conditions of the deal, government spokesperson Sibeth Ndiaye said.

"It is necessary that the conditions in which this merger takes place are at the same time favourable to the economic development of Renault, to its industrial development and obviously to the employees of Renault," said Ms Ndiaye.

However, a French government official told the Associated Press that France would prefer a merger between the existing Renault-Nissan-Mitsubishi alliance.

Investors welcomed Fiat Chrysler’s proposal, as shares in both companies were up 12 per cent in European trading.

Nissan Motor Co chief executive Hiroto Saikawa would not comment directly on the idea of a Renault-FCA merger but said: "I am always open to exchanging constructive views on strengthening the alliance."

Fiat Chrysler has estimated that Nissan and Mitsubishi would make €1bn in savings a year from the deal, though it was not clear how the Japanese companies would respond to being in an alliance with a much larger partner.

Collaboration between carmakers has become increasingly important in recent years due to the need to improve technological capabilities for electric vehicles, net connectivity and artificial intelligence for vehicles.

As governments and regulators try to meet tougher pollution limits, carmakers are under more pressure to transition towards producing electric vehicles.

Agencies contributed to this report