Fiat Chrysler (FCAU) Proposes $40B Merger Deal To Renault

Fiat Chrysler Automobiles N.V. (NYSE:F) proposed to collaborate with Renault SA (PA:RENA) (OTC:RNLSY) of France to establish the third biggest automaker in the world, per Associated Press. The $40-billion proposed company will aggressively enter the electric and autonomous vehicles industry. With anticipated annual vehicle production of 8.7 million, the merged entity is likely to reshape the global auto industry.

The deal is likely to be beneficial for the companies. This would lead to annual savings of $5.6 billion in forms of sharing of research, purchase of costs and other activities. Importantly, the merger is likely to be a good fit as Renault boasts strong presence in Europe and has edge developing electric vehicles while Fiat Chrysler has robust presence in the United States and SUV markets. However, these companies are comparatively weak in China, the largest auto market in the world.

Recently, the auto industry tends to opt for consolidation. In fact, the pressure and reality to invest heavily in the development of electric cars, self-driving vehicles and in-car connectivity resulted in a growing number of consolidations in the global auto industry. In addition to this, regulators in China and Europe are pushing automakers to produce electric vehicles to comply with the stricter climate change regulations.

However, there are several hurdles before this mega merger. Problems may arise from the leadership position in the merged entity. Moreover, the cultural and geographical synchronization can create problems.

Shares of Fiat Chrysler have underperformed the industry it belongs to in the past three months. Over this time frame, shares of the company have fallen 13% compared with the industry’s decline of 7.2%.

While Renault currently carries a Zacks Rank #3 (Hold), Fiat Chrysler has a Zacks Rank #4 (Sell).

A couple of better-ranked stocks in the auto space are Ford Motor Company (NYSE:F) and Fox Factory Holding Corp. (NYSE:F) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ford has an expected long-term growth rate of 7.3%. Over the past three months, shares of the company have gained 11.9%.

Fox Factory has an expected long-term growth rate of 16.4%. Over the past three months, shares of the company have gained 5.3%.

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