FCAU Fiat Chrysler Automobiles NV

By Adrienne Roberts 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 4, 2019).

Fiat Chrysler Automobiles NV's proposed merger with France's Renault SA is the latest jolt for the Italian-American auto maker's U.S. operations, a unit that has seen its parent company change three times in the past two decades.

Last week, Fiat Chrysler proposed a roughly $40 billion merger with European rival Renault, a tie-up that if completed would create a global auto-making giant with nearly 9 million vehicles sold a year.

Dealers and analysts in the U.S. say the tie-up could have long-term benefits for Fiat Chrysler's U.S. business, giving it access to Renault's electric-car technology and a partner with the global heft to rival General Motors Co., now the world's third-largest car maker and the biggest by sales in the U.S.

But there are drawbacks. Fiat Chrysler has leaned on profits generated by the popular Ram and Jeep brands in North America to prop up the company's weak European business. Fiat Chrysler on Monday said its U.S. sales rose 2% in May, a gain largely driven by a 29% increase in sales of the company's Ram truck brand.

Adding Renault would only increase the combined group's exposure to the continent's long-troubled car market, putting more pressure on the U.S. to drive profits for the auto-making group, industry experts say.

Fiat Chrysler's center of gravity also would shift further away from the U.S. toward Europe and could lead to more management shuffling, less than a year after Fiat Chrysler's longtime boss, Sergio Marchionne, died. Mike Manley is Fiat Chrysler's current chief, but people familiar with the deal say Renault's Jean-Dominique Senard will lead the newly combined group if the merger is completed.

A Fiat Chrysler spokesman said it was too early to comment on the new leadership structure and Mr. Manley's role in it.

"There is yet again another cultural change, and there are growing pains with that," said Jeff Schuster, president of global forecasting at LMC Automotive, a research firm.

Five years ago, Chrysler Group was fully combined with Italy's Fiat SpA, completing the last leg of a merger journey that began when Fiat rescued America's third-largest car company from bankruptcy and resulted in Mr. Marchionne fusing together two financially troubled car companies into a healthier, more global company.

Before Fiat, Chrysler had already been through immense change, including a failed merger with Germany's Daimler AG. Then, a takeover by private-equity firm Cerberus Capital Management LP ended with its collapse during the recession and a U.S. taxpayer-funded bailout.

Fiat Chrysler executives say the combination of the two companies would wring out billions in cost savings by increasing their economies of scale and could pave the way for Fiat Chrysler to join the Nissan-Renault-Mitsubishi alliance, a globe-spanning partnership formerly led by Carlos Ghosn.

Any benefits to Fiat Chrysler's U.S. operations, though, could take many years to achieve, analysts say, because the merged company would likely focus on fixing more-pressing problems in Europe. Still, the combination could change the dynamics of the U.S. market, where Fiat Chrysler has been historically the smallest and weakest of Detroit's Big Three car makers.

"Fiat Chrysler will be able to do things they weren't able to do previously with electrification, autonomy and have the scale to be cost-competitive," Mr. Schuster said.

Fiat Chrysler's U.S. dealers say adding Renault's stable of brands to the sprawling Fiat Chrysler lineup could create more complexity, rather than synergies.

Wes Lutz, president of Extreme Dodge, Chrysler, Jeep, Ram in Jackson, Mich., said when Mr. Marchionne combined Fiat and Chrysler, he brought two relatively unknown brands to the U.S. -- Fiat and Alfa Romeo -- and neither one gained much traction. Dealers felt the money spent to expand those brands could have been used to improve their existing models, he said.

Yet small-car models and valuable electric-vehicle technology that Renault could offer Fiat Chrysler could be helpful if gasoline prices spike again, Mr. Lutz said. Fiat Chrysler killed off many of its sedan models in recent years as those kinds of cars fell out of favor, and placed more focus on SUVs and trucks. The fuel-efficiency of its U.S.-sold vehicles has long trailed competitors and is among the worst in the industry.

Any deal between Fiat Chrysler and Renault faces numerous hurdles. Fiat Chrysler needs to convince the Renault board and the French government, which owns a 15% stake, that a merger would be the best route for Renault, a symbol of national pride in France. The Renault board is expected to meet Tuesday on whether to enter exclusive talks.

Renault's alliance with Japan's Nissan Motor Co. and Mitsubishi Motors Corp. is also a complicating factor. The Renault-Nissan relationship has grown strained since Mr. Ghosn's arrest late last year on charges of financial misconduct, and Nissan's backing will be important for getting a merger deal done. Mr. Ghosn has denied any wrongdoing.

The addition of Fiat Chrysler to the alliance would enhance its scale and purchasing power, creating a massive partnership that would dwarf GM and Ford Motor Co. in global sales, said Richard Hilgert, an analyst at Morningstar Inc.

It also could create complications. Nissan and Fiat Chrysler compete against each other in the U.S. on a number of fronts including big pickup trucks, and negotiating how that relationship would change and how to reduce overlap won't be easy, analysts say.

"The knife could come out," Mr. Schuster said, if the two decide they don't need as many models.

Write to Adrienne Roberts at Adrienne.Roberts@wsj.com

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