FCA Proposed Merger With Renault Could Lead to Captive Discussions

Fiat Chrysler Automobiles’ merger proposal to Groupe Renault is likely to lead to discussions of creating a captive finance arm to “support the level of volume the new organization could attain,” Zohaib Rahim, manager of economics and industry insights at Cox Automotive, told Auto Finance News.

“Last year, [former FCA Chief Executive] Sergio Marchionne mentioned developing a captive finance company in the U.S., and with a merger, this looks to be more doable,” Rahim said. “The new company would be bigger than General Motors and right behind Volkswagen and Toyota, with all three competitors having robust captive finance operations.”

FCA’s proposal to combine its business as a 50/50 merger with Renault means the new company could have more than $5 billion in annual combined cost savings, making room for the company to deliver financing options for its customers, Rahim added.

However, developing what could be the third largest OEM comes with a lot of reconfiguration, Black Book‘s Executive Vice President of Operations Anil Goyal told AFN.

“The issue here is the untying of the alliance of Mitsubishi and Nissan,” Goyal said, noting that it will take time for the alliance to determine which brand will hold power moving forward. “Additionally, it’s not clear whether the [OEMs] are going to market the Renault brand in the U.S.,” he said.

Susquehanna Financial Group’s bank and auto finance analyst Jack Micenko concurred, saying the impact on the finance side domestically is unclear, as Renault doesn’t sell cars in the U.S. However, the alliance would be “a positive” for FCA to enter markets it is not a part of currently.

FCA’s proposal focuses on a combination of FCA and Renault, but FCA is looking to create a combined enterprise that will continue working with Renault’s alliance partner companies, FCA noted in a press release. “The FCA and Groupe Renault combination, together with its Nissan and Mitsubishi partners, would be the largest global OEM alliance, selling more than 15 million vehicles annually,” FCA noted.

As for other opportunities, the potential alliance is primarily centered around the merging of technologies — similar to alliance announcements earlier this year regarding Volkswagen AG with Ford Motor Co. and Daimler AG with BMW Group’s $1.1 billion investment in a joint venture focused on mobility.

“The biggest benefit of [the alliance] is it gives FCA access to electric vehicle technology that Renault has been leading in the automotive space in Europe,” said Black Book’s Goyal.

Additionally, “FCA’s evolving capability in autonomous driving, which includes partnerships with Waymo, BMW, and Aptiv, is complemented by Groupe Renault’s decade of experience in EV technology where it is the highest selling EV OEM in Europe,” FCA said in its press release.

FCA declined a request for comment on this story.