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Fiat Chrysler set for tie-up with Renault 

It may open a path for it to eventually become part of the Renault-Nissan alliance, sources say

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Fiat Chrysler Automobiles and Renault have a combined market capitalisation approaching 33 billion euros and total global sales of 8.7 million vehicles.

BT_20190527_NAHTALKS27_3792332.jpg
Fiat Chrysler Automobiles and Renault have a combined market capitalisation approaching 33 billion euros and total global sales of 8.7 million vehicles.

Milan

FIAT Chrysler Automobiles NV (FCA) is set to announce a tie-up with Renault SA as soon as Monday, opening a path for the Italian-American vehicle maker to eventually become part of the Renault-Nissan Motor Co alliance, according to people familiar with the matter.

The deal may include an exchange of equity, the people said, asking not to be identified because the discussions aren't public. Nissan, Renault's alliance partner for two decades, isn't involved, though the transaction would allow the carmakers to join forces later, the people said.

With sales falling in the world's biggest car markets - China, US and Europe - vehicle makers are under intense pressure to combine efforts and investments as they develop expensive new technology such as self-driving cars and electric engines. Fiat has been seeking a partner for months, with talks focused on Renault and Peugeot owner PSA Group.

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Renault has been trying to firm up its alliance with Nissan, which was shaken by the arrest of former chairman Carlos Ghosn in November over alleged financial misdeeds. As he awaits trial, tensions have risen with Nissan executives resisting new attempts by Renault to cement ties.

A Renault deal with Fiat would put pressure on Nissan, while potentially making the resulting partnership more attractive. Talks have accelerated over recent days, as negotiators found a way to structure a deal.

Representatives from Fiat and Renault declined to comment.

Renault's partnership with Nissan was thrust into the spotlight in November with the arrest of Ghosn, the chairman and architect of the global car-making alliance that also includes Mitsubishi Motors Corp.

FCA also held initial talks with PSA as it evaluates potential partners, the people said. Chairman John Elkann and chief executive officer Mike Manley have made several trips to Paris since the beginning of the year for business meetings as part of their search for ways to make the carmaker stronger, the people said.

PSA is open to "opportunities that would create value on a long-term basis", but based on 2018's financial results, "there is no hurry to finalise any partnership," according to an e-mail statement.

Pressure for consolidation among carmakers has grown with the challenges posed by electrification, tightening emissions regulations and investment-thirsty technologies for connected and autonomous vehicles.

FCA and Renault have a combined market capitalisation approaching 33 billion euros (S$51 billion) and total global sales of 8.7 million vehicles. Besides bringing greater scale, a tie-up could help patch flaws on both sides.

FCA has a highly profitable North American RAM trucks business and Jeep brand but has been losing money in Europe, where it may also struggle to keep pace with looming carbon dioxide emissions curbs.

Renault, by contrast, is an electric-car pioneer with relatively fuel-efficient engine technologies and a strong presence in emerging markets, but no US business.

Any tie-up would likely face political and workforce hurdles, particularly in Italy. Most of FCA's European plants are running below 50 per cent capacity.

The plan under consideration could involve some transfer of equity, one source said. "This isn't just another partnership - it's more than that." Both carmakers have also been exploring tie-ups with other partners.

While FCA has recently revived discussions with PSA Group - which have been recurrent over the years - Renault is seeking a merger with Nissan, its partner in a troubled 20-year-old alliance.

A tie-up between FCA and Renault would not preclude a consolidation of the alliance with Nissan, one of the sources said.

The Renault-Nissan partnership, underpinned by crossed shareholdings, has been strained by the scandal surrounding former chairman Ghosn.

A tie-up that included Nissan would vault the ensemble to the rank of global No1 carmaker with 13.8 million annual sales.

It would also maintain a foothold in China, where both FCA and Renault are marginal players.

The discussions follow weakening US vehicle demand that has prompted cutbacks at several carmakers. FCA reported a 29 per cent decline in first-quarter operating profit as sales and margins weakened in its North American profit centre. Sales dropped 5 per cent to 24.48 billion euros. BLOOMBERG, REUTERS