Renault, Fiat Chrysler Will Stay in Their Own Lanes

Few firms these days are being forced to change gears faster than car companies. Customers are shunning sedans. Regulations and trade policies are in flux. Electric-powered cars have a foothold in the market, and self-driving vehicles may not be too far away.

So it’s not surprising that leaders are looking at company-changing moves, such as the proposed $40 billion blockbuster merger between Italy-based Fiat Chrysler Automobiles and the France-based Renault. A deal looked likely until late Wednesday, when Fiat Chrysler withdrew its merger proposal, saying in a statement that "political conditions" in France would have kept the merger from proceeding succesfully. News reports indicate that the French government, a major shareholder in Renault, would approve a deal only if it aligned with Renault's existing alliance with the Japanese automotive firm Nissan. 

While Renault and Fiat Chrysler is off for now, experts believe that more mergers, joint ventures, or other major combinations are on the way. Indeed, Renault and Fiat Chysler wasn't the only carmaker combination news Wednesday. BMW and Jaguar Land Rover announced that they will jointly develop motors, transmission, and other parts, an alliance designed to lower the costs of developing electric cars. “Large scale of operations is the only way to keep the unit costs of cars low enough to satisfy consumer demand for autos that are pretty much the same price but have loads more features each year,” says Rory Singleton, a Korn Ferry senior client partner and a core member of the firm's Industrial Manufacturing and Automotive teams.

Any auto combination will, of course, have to produce the vehicles the market wants, but experts say the industry’s century-old legacy poses unique opportunities and challenges. “How it turns out is predicated on how you bring the two merging businesses together culturally and embrace this changing world,” says Peter Cave-Gibbs, a senior client partner for Korn Ferry’s Global Technology practice.

Most important will be creating a productive, healthy culture in the merged firm. This is true of all firms during mergers, but car companies have multiple cultures within them. Already there are old-time industry insiders trying to work well with the influx of younger engineers who seemingly would fit better at a Silicon Valley start-up.

Then there are the cultures the companies adapt from their home countries. For instance, Fiat Chrysler is based in Italy but has a US tint thanks to its presence stateside. Renault, by contrast, is a decidedly French firm. And since auto manufacturers have an impact on a large swath of a nation’s economy, national governments often take an interest in the industry. Indeed, France has a 15% stake in Renault and its hesitance to back the proposed deal is one of the reasons why merger  talks broke down. But culture isn’t important just on a national scale—it matters among newly combined coworkers as well. “If you ignore the cultural aspect then you will fail,” says Cave-Gibbs.