photo of Renault logo by Ivan Radic
It took four months for political and community opposition to persuade Amazon to abandon plans to create part of its so-called second headquarters in New York City.
The French proved to be far more efficient. It only took 10 days for government foot-dragging and national pride to scuttle a proposed merger between Renault SA and Fiat Chrysler Automobiles.
In early June, Fiat Chrysler abruptly withdrew its offer for a merger with Renault. People involved in the deal pinpointed interference from the French government as the culprit. In a statement, Fiat Chrysler said that its management remained “firmly convinced” of the rationale behind the merger-of-equals, but “it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully.”
Analysts said that the merger was a sensible one, since each automaker has complementary strengths. Fiat Chrysler owns the popular Jeep and Ram brands; Renault is a leading developer of electric and self-driving vehicles. Fiat Chrysler CEO Mike Manley and Renault CEO Jean-Dominique Senard both expressed enthusiasm about the prospect of joining forces.
Renault’s older alliances with Japanese companies Nissan and Mitsubishi has been strained since former alliance chief Carlos Ghosn was arrested last year. But while Nissan’s leaders raised some concerns about Renault’s plans, they seemed unlikely to prevent the deal from proceeding outright. It was up to the French to do that.
France’s government – which holds a 15% stake in Renault – placed a series of “demands and pressures” on the automakers, starting mere hours after the companies announced the proposed merger. France’s finance minister set demands that included preserving all of Renault’s plants and jobs in the country. Eventually, those demands grew to encompass the makeup of the merged company’s board and the location of its headquarters. French officials also emphasized the importance of preserving the Renault’s relationship with Nissan. They demanded a vote on the merger be postponed after Nissan said it would abstain. Fiat Chrysler closed the door on a merger instead.
Senard, who succeeded Ghosn, finds himself in the awkward position of having supported a deal his own government undermined. He and Manley reportedly remain cordial. Senard has publicly criticized the French government’s actions and defended his own attempts to make the deal work. “The benefits of this operation are very evident, and in my industrial life I’ve rarely seen a merger project that could bring so many positive synergies,” Senard said at Renault’s general meeting last week. Senard also revealed that he originally initiated contact with Fiat Chrysler at the suggestion of France’s finance minister, making his frustration all the more understandable.
This story has an obvious lesson, which is that a party with any sort of connection to a business deal can blow it up with enough of a commitment to doing so, no matter how strong that deal might be otherwise. It has a less-obvious lesson, too: Once a deal fails, the party responsible usually disclaims any such intention or responsibility.
Learning these lessons now will not bring any new jobs to New York City. And it isn’t going to help make Renault more competitive in an increasingly tech-oriented, scale- and capital-intensive auto industry. The French government wanted to ensure that it retained every single French job at Renault, as well as board influence and the company’s corporate headquarters. They scuttled the proposed deal with Fiat Chrysler to make sure of it. Unfortunately, French policymakers may someday learn that everything Renault offers is in jeopardy if the company can’t compete in the 21st century.
If a good business deal leaves both sides better off than they would be without it, then breaking up a good deal is bound to leave both sides worse off than they might have been. But when the goal of breaking up the deal is to defend narrow parochial interests, no matter the overall cost to the greater good, that doesn’t matter.
Senard told shareholders that a future merger with Fiat Chrysler is still possible, especially if Renault can repair its damaged partnership with Nissan. This could be true. But Renault will still have to contend with the French government’s stubbornness. Meanwhile, Fiat Chrysler is attempting to shore up its weaknesses in other ways. The automaker, which has lagged Renault and other competitors in electric vehicle development, recently signed an agreement with two major European utilities to roll out charging stations for hybrid and fully electric Fiat Chrysler models.
Given the political risks and management distractions that a base in Long Island City would have involved, Amazon was wise to withdraw. Other businesses have since absorbed the lesson in New York’s business climate that Amazon offered. French government obstruction in the Fiat Chrysler deal was hardly surprising, given the country’s traditional statism toward big business. But this incident will likewise reinforce the impression that France is not a great place to run a business of any size.