Fiat Chrysler Automobiles is proposing a merger with French automaker Renault that would create the world’s third-biggest carmaker as manufacturers scramble for scale to tackle an expensive shift to electrification and autonomous driving.

The transaction would be structured as a 50-50 ownership through a Dutch holding company, the Italian American automaker said Monday. Renault’s board later said it would study what it called a “friendly” proposal, which would give its shareholders, including the French government, an implied premium of about 10%.

Together, Fiat and Renault made about 8.7 million cars last year, which would vault the pair past South Korea’s Hyundai Motor Group and Detroit’s General Motors Co. That’s still behind the world’s two biggest automakers, Volkswagen AG and Toyota Motor Corp., which both topped 10 million vehicles last year.

Fiat and Renault would have a “broad and complementary brand portfolio” covering markets from luxury to mainstream, the Italian company said in its statement. Premium brands Jeep, Maserati, Alfa Romeo and Infiniti would come under a common umbrella.


Fiat would give Renault access to the North American market, while gaining clout in Russia, the French carmaker’s second-biggest market with its Avtovaz unit. Both companies reported lower deliveries in the first quarter.

The deal is expected to save Fiat and Renault $5.6 billion in research and development, as well as manufacturing costs. Fiat said the merger would not result in plant closings.

The carmakers are moving ahead without Renault’s 20-year partner, Nissan Motor Co., as well as Mitsubishi Motors Corp. All three are members of an alliance created by Carlos Ghosn that was thrown into disarray last year when the auto titan was arrested in Tokyo on charges of financial crimes. Ghosn is free on bail and has denied the charges, but is no longer in executive positions at the companies.

Fiat has conditioned the merger talks on Renault agreeing not to pursue a merger with Nissan in the short term, according to people familiar with the matter. The Japanese company would be welcome to join the merged entity later. If the output of Renault’s existing alliance with Nissan and Mitsubishi were added, the group’s total production would be more than 15 million vehicles a year.


The broad strokes of the plan would make Fiat’s founding shareholder, the Agnelli family’s holding company Exor NV, the single largest investor in the combined entity. Fiat Chairman John Elkann would probably stay in that role while new Renault Chairman Jean-Dominique Senard — who succeeded Ghosn in the post — would be chief executive, the people familiar with the proposal said.

Renault shares surged as much as 16.7%, while Fiat rose as much as 19.5%, the most ever on news of the deal. Together, they had a combined market value of about $39 billion.

The talks come as automakers worldwide face intense pressure to spend heavily on new technologies and adapt to trends such as ride-hailing, electrification and autonomous driving. Waymo, a unit of deep-pocketed Google parent Alphabet Inc., is considered a leader in autonomous technology, while financially troubled Tesla has quickly seen its Model 3 become the most popular electric vehicle in the U.S.

Falling sales in the world’s biggest markets — China, the U.S. and Europe — also have brought fresh urgency to consolidate.


“Fiat and Renault are looking for surer footing by gaining scale, and that’s not a bad idea for mass-market carmakers,” Bankhaus Metzler analyst Juergen Pieper said. “The execution of the deal is a significant hurdle. But on paper, this proposal looks good.”

The plan has political backing from the French state, which is Renault’s most powerful shareholder. Finance Minister Bruno Le Maire met last week with Senard to discuss the proposal, government spokeswoman Sibeth Ndiaye said on BFM television Monday.

“We need to have industrial giants in Europe” to compete globally, she said. “Obviously we have to see the conditions” of the deal, to ensure that it would be favorable to Renault’s development and to its employees.

Italian Deputy Premier Matteo Salvini, who initially threatened to intervene, later gave his blessing — telling Agence France-Presse he trusts the deal “will safeguard every job in this country.”


Shareholders of both companies would be diluted by half. France’s stake would go down to about 7.5%, and it would lose the double voting rights that give it extra sway with Renault. Nissan, which now owns almost 15% of Renault, would regain voting rights suspended under terms of the Renault alliance.

Fiat and Renault went through dramatic changes at the top last year after former Fiat chief Sergio Marchionne died and Ghosn was arrested.

Ghosn’s removal from the helm of the Franco-Japanese partnership brought simmering tensions to the surface, with Nissan so far rejecting a French push for a merger. Should Renault’s deal with Fiat go through, Nissan will now find itself chained to the larger entity through deeply integrated operations and cross-shareholdings with the French manufacturer.

Fiat CEO Mike Manley said Monday that Nissan and Mitsubishi would see benefits from the combination — the company’s proposal put them at $1.1 billion a year — and said he’d look for “even greater and mutually beneficial opportunities.”


As part of the proposed deal, Fiat said it plans to spin off its robotics arm Comau. The company had considered options for the unit late last year, including a potential sale at a value of $1.7 billion to $2.2 billion, Bloomberg reported in November.

The proposed deal between Fiat and Renault is propelled by an industry undergoing tectonic shifts. Still, merging companies with production facilities in North America, Europe and Japan won’t be an easy task and the history of deals in the car industry is marked by some spectacular failures.

Daimler AG a decade ago unwound a merger with Chrysler after failing to overcome cultural differences between the German luxury-car maker and U.S. producer of mid-range cars. Volkswagen’s planned alliance with Suzuki Motor Corp. ended in a London arbitration court before any joint vehicle came off the production line.

In making the proposal to Renault, Elkann said he’s encouraged by the success of Fiat’s own merger with Chrysler. “We have learned that such deals can be done — they are advantageous,” he told reporters in Milan. “The automotive industry is going through changes, with challenges and opportunities ahead of us.”