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Renault, Fiat Chrysler set to announce global partnership

Fiat Chrysler and Renault were deep in talks today about a global partnership agreement that could ultimately lead to a full-blown merger, according to three people with knowledge of the situation.

The negotiations remained fluid today, with a range of outcomes possible. Both sides were hoping to announce an agreement on Monday morning.

At a minimum, the two sides have agreed to share technology, intellectual property, supply chains and plants to develop and manufacture vehicles, these people said.

The cooperation, which might involve buying each other’s shares, would further underscore how auto companies are linking arms to cope with sweeping technological change, including the development of electric cars and autonomous driving technology.

People on both sides stressed that a partnership would not result in job losses, a key issue for the various governments and regulators that might have to approve the transaction. These people said the benefits of the combination would be from savings in combining purchases for supplies and in the development of new vehicles. Renault, for example, has a robust electric vehicle plan in place that would be shared with Fiat Chrysler, which is considered to be behind.

A partnership would also help both companies manage a downturn in European car sales, which slipped 2.6% in the first four months of the year.

The talks raise questions about the future of the Renault partnership with Nissan and Mitsubishi, known as the Renault Nissan Alliance.

Renault negotiated with Fiat without involving Nissan, according to two people with knowledge of the situation — a surprising state of affairs for two companies that once cultivated the impression that they operated as one.

Negotiations with Fiat Chrysler raise the possibility that Renault is looking for alternatives to Nissan or at least a counterweight in their power struggle. Relations between the French and Japanese companies have soured since Carlos Ghosn, former head of the alliance, was arrested in Tokyo in November and later charged with financial wrongdoing.

Ghosn, who remains under house arrest and no longer works for the alliance, has said that he is innocent and that the accusations are part of a plot to strip him of power. Nissan has complained that Renault dominates the alliance even though the Japanese company sells more autos and has a stronger international presence.

“If they are in an alliance and one of them is talking to someone else, that’s not a good sign,” said Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen in Germany who follows the auto industry.

As part of the arrangement, Renault is unlikely to pursue a larger merger with the alliance of Nissan and Mitsubishi anytime soon, the people with knowledge of the talks said, given the integration work that would need to take place over the next two years.

As they work out their deal, Fiat Chrysler and Renault intend to invest in each other’s shares, these people said, though the amounts and valuations were not clear. It was possible each side could take a stake of 10 to 25%. It was also unclear today what the governance structure would look like.

In his shareholder letter this year, John Elkann, Fiat Chrysler’s chairman, signaled a major transformation for his company. “The next 20 years for the automotive industry, like its first 20 years, are set to witness a greater level of change than during the intervening 100. We are determined that we and FCA will play our part actively and ambitiously in this new and exciting era.”

Fiat has been struggling in Europe. Its market share in the European Union, including other company brands like Jeep and Alfa Romeo, has slipped to 6.4% from 6.9% a year ago. Because of a dearth of new models, Fiat has fallen behind Hyundai in Europe, where Asian brands have not traditionally been popular.

Fiat has also been slow to invest in electric cars, a technology that Renault embraced early.

Renault’s market share has risen to 11% so far this year from 10.7% last year. But that is largely because of sales of its budget Dacia brand. Renault brand cars have lost market share.

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