The prospect of a 50-50 merger between Fiat Chrysler and Renault underscores the continued importance of chief-executive personalities and control even in one of the world’s largest industries, something that board members would be wise to watch. It’s the personalities who are – and aren’t – in the C-suites of these companies driving the action, while their directors basically look on for now.
A year ago, such a business combination would have been out of the question because Sergio Marchionne was alive and CEO of Fiat Chrysler, and Carlos Ghosn was still running the Renault-Nissan alliance instead of sitting in a Tokyo jail.
It’s not that the new chiefs of Fiat Chrysler and the Renault-Nissan alliance, Mike Manley and Jean-Dominique Senard, are afterthoughts; Senard would be the CEO of a combined company, according to the Fiat Chrysler proposal.
Nor are we talking about rubber-stamp boards anywhere. Various boards and directors of both Fiat Chrysler and Renault have been negotiating difficult twists and turns for their companies, and against the backdrop of a fast-changing auto industry, for nearly 20 years now.
But while the successor CEOs have been getting used to their new jobs over the last several months, into the personality vacuum stepped John Elkann, chairman of Fiat Chrysler and representative of the Agnelli-Elkann family that still owns 29 percent of the company.
With both Marchionne and Ghosn out of the picture, the business logic of putting the two companies together to create the world’s third-largest automaker has a chance to emerge, led by Elkann. And based on the signaling so far from Renault and European governments to the proposal made by Fiat Chrysler, the thing could happen.
The logic for the deal rests on at least a couple of strong pillars. First, auto sales globally and even in the United States have slowed, increasing pressure on all carmakers to cut costs and rationalize – and mergers are always a good way to do that. And second, each company can offer the other something that they’ve never had and still need: Fiat Chrysler can give Renault access to a U.S. market that has been only an afterthought for the French auto maker, and Renault can help Fiat Chrysler field electric vehicles, where the latter has been strategically late.
Most of the action after a deal would occur in Europe, where Fiat Chrysler is utilizing only 65 percent of its production capacity and dealing with a persistently sluggish European market. Fiat Chrysler in the United States has become something of a well-oiled machine, operating at 100 percent of capacity turning out high-profit Ram pickup trucks and Jeep SUVs, beating Ford on profitability, continuing to broaden its product line and staying out of the sedan business under CEO Mike Manley.
It is ironic that, a few years ago, Marchionne stepped up as the only significant voice in the industry and called for consolidation of the global auto industry because of overcapacity and the tremendous costs of engineering and launching new vehicles. But his transparent efforts to join with General Motors were rebuffed. And potential European partners were wary partly because of Marchionne’s Trumpian reputation as a tough negotiator. Marchionne largely retreated to the sidelines with such views. Then he died last summer after medical complications.
Meanwhile, though Marchionne and Ghosn informally had discussed business combinations over the years, the chairman of the Nissan-Renault-Mitsubishi alliance was busy trying to hold that clumsy agglomeration together rather than focusing on the need for still more rationalization in the industry. But Ghosn lost his job after Japanese authorities charged and jailed him last year over alleged financial irregularities in how Ghosn ran Nissan, so he’s out of the picture as well.
Now without his friend and mentor Marchionne by his side, and with the Renault-Nissan relationship frayed by the Ghosn saga, Elkann has stepped up with a combination idea that would accomplish two personal objectives: making the family auto business stronger, and at the same time reducing the family’s exposure to it.
It’ll be a long process to see if the deal will be agreed to and whether it would work. And while surely Fiat Chrysler’s board assented to Elkann’s move ahead of time, the boards’ roles in any combination will likely emerge and grow stronger over time. European unions have yet to weigh in as well.
But like so much in business even in the modern era, the fate of a Fiat-Renault merger will be determined by the biggest influences in the room. And those usually belong to the CEOs.
Read more: Demystifying The Fall Of Carlos Ghosn