Fiat Chrysler abruptly withdrew an offer to merge with French automaker Renault late Wednesday, a shocking reversal of a deal that could have reshaped the global auto industry.
The Italian-American automaker blamed its move on France's government, saying that the country's political climate would stop the tie-up from being successful. The government owns 15% of Renault and would have had to approve the merger.
"It has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully," Fiat Chrysler said in a statement. "FCA will continue to deliver on its commitments through the implementation of its independent strategy."
Officials on each side blamed the other for making demands that caused the deal to fall apart with little hope of revival. The moves came on a tumultuous day in which FCA and the government reached a tentative deal on merger terms but it was scuttled later as Groupe Renault's board met for six hours outside of Paris. The board postponed any action on the merger at the government's request, Renault said.
Fiat Chrysler proposed the 50-50 merger in late May, saying it would save more than 5 billion euros ($5.62 billion) per year in purchasing expenses and costs developing autonomous and electric vehicles. The combined company would have produced some 8.7 million vehicles a year, more than General Motors and trailing only Volkswagen and Toyota. The merger would have created the world's third-largest automaker worth almost $40 billion.
Fiat Chrysler employs more than 8,200 workers spread across five factories in north-central Indiana—Indiana Transmission Plant I in Kokomo, Indiana Transmission Plant II in Kokomo, Kokomo Transmission Plant, Kokomo Casting Plant and Tipton Transmission Plant.
Nissan, which has a longtime alliance with Renault, expressed reservations about the deal. But if it had gone along, it would have created the world's biggest auto company.
Most analysts praised the combination, saying each side bought strengths that covered up the other's weaknesses. Now, the two companies apparently must find a new way to address any shortcomings at a time when the auto industry is in the midst of a global sales slowdown and facing enormous expenses to develop future technologies.
"FCA clearly saw too many obstacles, primarily Nissan's reluctance," said Kelley Blue Book Executive Publisher Karl Brauer. "Given the longstanding relationship between Renault and Nissan, it's hard to imagine the merger working without Nissan's full support."
The scuttled deal won't stop consolidation talks from continuing in the auto industry, Brauer said.
A person with ties to Fiat Chrysler said the talks were going great until the government got involved, continuing to push job security and other demands even after the initial deal was reached. The person didn't want to be identified because details were not included in the company's official statement. The person said Renault and its alliance partners Nissan and Mitsubishi, were "all in" on the deal.
But a French government official gave a different take, saying its demands were made public early on and did not change. The government sought guarantees that no French factories would be closed and no jobs would be lost. It also wanted support from Nissan and parity in corporate governance between Fiat Chrysler and Renault, said the person, who also requested anonymity because the government had yet to make an official statement.
Fiat Chrysler abruptly yanked its offer after the government said it wanted to wait until Tuesday to make a decision so it could meet in Japan with Nissan representatives, the person said.
The French government had said previously that it also wanted investment assurances, a seat on the merged entity's board, and for the operational headquarters of the merged company to be in France.
Earlier Wednesday, France's finance minister said the car companies shouldn't rush into a merger.
"Let's take the time to do things well," Bruno Le Maire said on BFM television. "We want this merger, but we don't want it under just any conditions."
The negotiations come as the French government is struggling to contain fallout from new job cuts announced by General Electric in France.
Renault's powerful CGT union is against a Fiat Chrysler merger, fearing the loss of jobs and arguing the proposal undervalues Renault and bails out Fiat.
The merger could have also threatened Renault's troubled alliance with Nissan and Mitsubishi. Nissan had no comment Wednesday on the collapsed deal.