No plant closures on table as deal aims to seek efficiencies through common global vehicle platforms, architectures, powertrains, technologies

Geoff Zochodne, Financial Post
May 27, 2019

The proposed merger of Fiat Chrysler Automobiles N.V. and Renault S.A. could present opportunities for the Canadian auto sector, but it’s still too early to say for sure how a combination of two of the world’s biggest carmakers will play out, according to some in the industry.

Italian-American automaker FCA announced Monday that it had proposed a 50-50 merger with France’s Groupe Renault. If it goes through, the tie-up could create the world’s third-largest vehicle producer, with approximately 8.7 million in combined annual vehicle sales, FCA said.

FCA’s press release announcing the deal declared there would be “no plant closures as a result of the combination,” as the benefits of the proposed transaction would be “achieved through more capital efficient investment in common global vehicle platforms, architectures, powertrains and technologies.”

The vow may come as a relief, for now, to FCA’s Canadian workers. FCA said in March that it would cut a shift and about 1,500 jobs at the company’s Windsor, Ont., assembly plant, where it builds the Chrysler Pacifica and Dodge Grand Caravan minivans.

FCA also has a casting plant in the west end of Toronto, an assembly and stamping plant in Brampton, Ont., and three CpK Interior Products parts-making facilities in the Ontario towns of Belleville, Guelph and Port Hope.

As of 2016, annual vehicle production at FCA Canada was more than 500,000, according to the Canadian Vehicle Manufacturers’ Association. FCA Canada reported sales of 224,889 vehicles for 2018, with purchases of its Ram trucks and Jeeps making up more than half the total.

Combining with Renault could provide an opportunity to reach some new potential international customers for FCA. The company noted in its release that it is “uniquely positioned in the high margin segments” in North America and a “market leader” in Latin America, while Renault, its French counterpart, “has a strong presence” in Europe, Africa and the Middle East.

“The advantages to FCA in Canada could be additional markets for the minivan plant in Windsor and new platform options for the car plant in Brampton,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, in an email.

Volpe noted the final outcome is still to be determined, but said there could be benefits for the automaking alliance Renault has with Japan’s Nissan Motor Co. and Mitsubishi Motors Corp.

“Renault/Nissan could get the benefit of the platform success and popularity of (FCA’s) RAM and Jeep divisions, potentially adding more volume opportunities for big Canadian suppliers who play very large on the engine and transmissions of the former and the overall assembly of the latter, all in Michigan,” Volpe wrote.

Canada’s biggest private-sector union, Unifor, represents workers at FCA assembly plants, and said it would be keeping an eye on the proposed deal.

“The proposed merger would be a major re-alignment of the global auto industry,” Unifor National President Jerry Dias said in a statement to the Financial Post. “Unifor will carefully analyze and monitor the situation in terms of what it may mean for Canadian operations within the proposed global corporation. There may be risks, there may be opportunities, but what’s important at this stage is keeping a careful eye on the interests of our members and the long-term future of the industry in Canada.”

FCA Canada declined to comment further on the possible effects of the proposed deal.

According to the release, the combined business would be 50 per cent owned by FCA shareholders and 50 per cent owned by Renault shareholders, although before the deal closes, FCA shareholders would first receive a 2.5-billion-euro dividend “to mitigate the disparity in equity market values.”

FCA projected that approximately 90 per cent of what could ultimately be more than 5 billion euros in annual synergies would come from purchasing savings, as well as research, development, manufacturing and tooling efficiencies.

The Fiat Chrysler – Renault merger is aimed at saving billions of dollars for both companies.Gene J. Puskar / AP

There may be a few bumps along the way for the deal, such as those that could be created by lawmakers in Europe. Renault’s biggest shareholder is the French government and the company recently saw the resignation of its (as well as Mitsubishi’s and Nissan’s) former chairman, Carlos Ghosn, after he was arrested in Japan over alleged financial misconduct.

While Renault currently has no major manufacturing plants in Canada, the strategic venture capital arm of the Renault-Nissan-Mitsubishi alliance, Alliance Ventures, announced an investment in Montreal-based transportation app Transit last November.

FCA noted in its release that there is no guarantee of a deal, and that the transaction remains subject to further approvals from directors, shareholders and regulators. Renault’s board of directors met on Monday to discuss FCA’s proposal and said they had decided “to study with interest” the possibilities of the deal.

Dias said the French government “will certainly be working actively to ensure a strong outcome for the industry in France,” which highlights the role for governments to play in the Canadian industry.

“We’re a medium-sized player in a global industry, and need to assert our interests strongly,” he said. “At a time like this we need strong industrial, investment and trade policies more than ever, to ensure that the Canadian industry has a solid future.”



Via: Financial Post