This article is more than 1 year old

This article is more than 1 year old

The proposed €33bn (£29bn) merger of Fiat Chrysler and Renault has collapsed after an intervention from the French government, Renault’s biggest shareholder.

Fiat Chrysler, an Italian-American company, withdrew from a 50-50 merger proposal with its French rival after a board meeting on Wednesday. A deal would have created the world’s third-largest carmaker behind Volkswagen and Toyota.

“FCA [Fiat Chrysler Autmobiles] remains firmly convinced of the compelling, transformational rationale of a proposal,” the company said.

“However, it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully.”

Renault said its board had been unable to press ahead with the deal because French government representatives had requested a postponement of the vote.

The French government holds a stake of more than 15% in Renault. Japan’s Nissan also owns 15%, while Renault owns 43% of Nissan.

Fending off criticism, the French finance minister, Bruno Le Maire, said the French state had engaged constructively with all partners in the negotiations but that agreement had not been reached on all the government’s conditions for a deal.

“What remained to be obtained was the explicit support of Nissan,” Le Maire said.

Nissan had said it would abstain in the Renault board’s vote on the merger proposal because it needed time to analyse it. Nissan’s chief executive, Hiroto Saikawa, said it would require a fundamental review of its relationship with Renault.

Renault expressed disappointment at the collapse of the merger, saying: “We are gratified by the constructive approach of Nissan and wish to thank FCA for their efforts and Renault’s board of directors for its continued confidence.

“We view the opportunity as timely, having compelling industrial logic and great financial merit, and which would result in a European-based global auto powerhouse.”

The Italian deputy prime minister, Luigi Di Maio, weighed in, saying that political interference could be harmful. “When politics tries to intervene in economic procedures, they don’t always behave correctly, I don’t want to say any more,” Di Maio, who is also minister for economic development, told Italian radio. One Italian union leader accused France of “provincialism”.

FCA has been on the lookout for a merger for some time and previously held talks with the Peugeot maker, PSA Group.

On Wednesday, Le Maire had said there was no need to rush through a deal, adding that the government wanted guarantees over Renault jobs, a headquarters in Paris and corporate governance. “We want to do this merger,” he told BFM TV.

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Fiat Chrysler announced a proposed merger with Renault last week. Carmakers around the world are under pressure to invest in electric and self-driving cars. The combined company would have produced 8.7m vehicles annually and saved €5bn a year by sharing research, purchasing and other activities, Fiat Chrysler argued. It said the deal would not lead to factory closures, but did not rule out job cuts.

Under the original proposals, the joint company would have been 50% owned by Fiat Chrysler shareholders and 50% by Renault shareholders.

Ana Nicholls, director of industry operations at the Economist Intelligence Unit, said Nissan and Renault’s unions were probably also barriers.

“For Nissan, the deal would have complicated its already dicey alliance with Renault. By bulking up the French company and changing its board, it would have diluted Nissan’s influence… FCA is also a key competitor for Nissan in several markets, most importantly North America, which would have made sharing technology difficult.