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Automaker mergers: Fiat Chrysler and Renault show why carmakers desperately need each other



That's one big reason France's Renault is considering a merger with Fiat Chrysler that would create the world's third largest carmaker and reshape the global auto industry.
Carmakers are facing a huge challenge. Global sales are at the exact time they need to spend more on developing electric and autonomous vehicles. There is also new competition from the likes of Tesla ( TSLA ) and Uber ( UBER ) . ] The pressure is forcing established automakers into arrangements that allow them to increase revenue while sharing costs.

"There has been talk of consolidation for a long time," said Michelle Krebs, a senior analyst at Autotrader, who noted that form Fiat Chrysler CEO Sergio Marchionne was a big proponent. "It's not surprising it comes now."

Under pressure

Carmakers need to focus on the future of transportation. But the first major problem is flagging sales.

In China, annual sales declined for the first time in two decades last year amid economic weakness and trade was with the United States. Sales of cars in the United States are also sliding. Fiat Chrysler's US sales dropped more than 3% in the first three months of 201
9 compared to the previous year.

"We are in a post-peak era where sales have hit records then come down a bit," Krebs said.

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Meanwhile, the amount of money that car companies need for earmark for research and development is ballooning, especially as competition with Silicon Valley heats up.

A number of car companies have responded to this pressure by making cuts. Ford last week announced that cutting 10% of its salary staff worldwide in order to save $ 600 million a year.

Still others are moving to deepen partnerships and alliances so they can spread out development costs.

Germany's BMW ( BMWYY ) and Daimler ( DDAIF ) are putting $ 1 billion into a joint Venture to develop ride-sharing and charging services. Ford and Volkswagen are building some new vehicles together.

A merger between Fiat Chrysler and Renault would take such cooperation a step further. The companies had been discussing ways to team up on new products and tech, but Fiat Chrysler argued that a merger would be the best.

Merger moves

Combining Fiat Chrysler ( FCAU ) and Renault ( RNLSY ) could benefit both companies

Fiat Chrysler owns brands such as Jeep and Ram that have a lot of growth potential abroad, especially in the Middle East and Africa where Renault is strong, Krebs said.

Renault, on the other hand, does not have a significant presence in North America, where Fiat Chrysler is a major player.

Additionally, Renault is a leader in electric vehicles, while Fiat Chrysler has lagged behind. The Italian-American company said a merger with Renault would produce annual cost savings of more than € 5 trillion ($ 5.6 billion).

 Nissan hits rock bottom & # 39; as Renault pushes for a merger
One wild card is Renault's existing relationship with Nissan ( NSANF ) . Renault holds a 43.5% stake in Nissan, while Nissan owns 15% of Renault, as part of an alliance that also includes Mitsubishi Motors.

The French carmaker, which sells fewer cars than Nissan, had been pushing for the companies to merge but faced pushback.

"The biggest mystery in all of this is where Nissan fits," Krebs said.

Auto mergers don't always work out, however. Fiat Chrysler would know: its merger with Daimler in 1998 ended less than a decade later, partly because of differences in corporate culture.


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