U.S. factory workers likely to fare best in Fiat Chrysler-Renault merger
French automaker Renault SA is expected to respond Tuesday to a merger proposal from Fiat Chrysler Automobiles NV, a potential tie-up that experts predict would eventually lead to job cuts in Europe — where both automakers employ too many people making vehicles delivering too little profit.
The net result is underutilized European plant capacity that erodes both bottom lines, raising skepticism that combining the French and Italian-American automakers into the world's No. 3 automaker can be accomplished without plant closings. That's why politicians in France and Italy are demanding safeguards against job cuts.
"It’s very easy to make a statement that says right now we’re not going to make any cuts until you go through the process," said Jeff Schuster, industry analyst with LMC Automotive. "Looking at the capacity utilization numbers, I think you can only come to one conclusion: something has to give."
Fiat Chrysler hourly employees based in the United States are in a stronger position. FCA's American plants are running at near-capacity churning out SUVs and pickup trucks for its North American customers. The U.S. plants are far more profitable than both FCA's or Renault's in Europe — and that could mean those working the lines in the U.S. are safer from job cuts that could come to salaried workers or those in Europe, experts said.
In official announcements, Fiat Chrysler said there would be no factories closed as a result of a marriage. And CEO Mike Manley in a letter to employees wrote the projected cost cuts "are not predicated on plant closures but instead on the ability of the combined company to invest capital more efficiently."
Data compiled by LMC Automotive suggests otherwise. It shows Renault plants in eastern Europe operating at 65% of their capacity in 2019, while western Europe is running at 73%. FCA's plants in eastern Europe are operating at 45% capacity, even as western Europe is running at 61%. FCA's U.S. plants overall are running at 86% capacity this year, with two of the automaker's six operating plants running at near 100% capacity or more.
Important details about the terms of the merger are likely to be confirmed this week, according to a source close to the situation: where the merged company would be headquartered, who would run it as CEO, who would chair the combined company's board, and whether the rest of the Renault alliance with Nissan Motor Co. and Mitsubishi Motor Corp. would be included or how.
But industry experts said mergers like this often create redundancies — and it's highly unlikely, based on past mega-deals, that a FCA-Renault merger wouldn't result in salaried jobs cuts as automakers move to save money and redeploy it elsewhere amid an uncertain future for the industry.
FCA had more Europe-based salaried employees in 2018 than it did in North America. The European workforce glut — both white- and blue-collar workers — would be an issue for both automakers if a merger moves forward, according to Schuster and Kristin Dziczek, vice president of industry, labor and economics at the Ann Arbor-based Center for Automotive Research. But she sees U.S. hourly employees as relatively safe.
"FCA's building a new plant here," Dziczek said, referring to the automaker's plans to build a new Jeep assembly plant on the east side of Detroit. "There's not many redundancies there."
Fiat Chrysler a week ago presented Renault's board of directors with a 50-50 merger proposal to create a combined company that it said would save money by integrating manufacturing, purchasing and engineering operations, among other things.
That prompted a push from Renault to move to sell the merger to industry and government officials in Europe, even though the Renault board of directors isn't expected to vote on the merger until Tuesday. The French government wants job guarantees before approving a merger. Italy's deputy prime minister, Matteo Salvini, expressed an interest in Italy taking a stake in the combined company if necessary.
If a merger clears hurdles — which Manley told employees could take most of the next year to work through — both FCA and Renault would be forced to address waning utilization of most of their European factories and workforces.
Renault chairman Jean-Dominique Senard, reportedly in line to become CEO of a combined FCA and Renault, spent time in Tokyo over the last week to pitch Renault's alliance partner of 20 years, Nissan, on the merger.
Once a model of cooperation in the industry, the alliance between Renault, Nissan and Mitsubishi has been under considerable strain following charges of financial wrongdoing against longtime Renault-Nissan CEO Carlos Ghosn. Should an FCA tie-up with Renault eventually include Nissan, which has a considerable U.S. manufacturing footprint, the prognosis for the Italian-American automaker’s hourly workers could be much different.
"A greater tie-up that leads to a merger with Nissan could have strong implications for FCA’s relationship with the" United Auto Workers, Dziczek said. "It would be difficult to have a merged company (in the U.S.) that has some union plants and some not. That’s something they’re going to have to reckon with."
Fiat Chrysler's existing investments — like the automaker's plans to build a new Jeep assembly plant in Detroit — are expected to continue uninterrupted, sources have told The Detroit News.
White-collar employees have been the target of recent job cuts at Ford Motor Co. and General Motors Co. as the automakers aim to better align their workforces to focus more heavily on autonomous and electric vehicles as well as SUVs and trucks.
Both Schuster and Dziczek said it's too early in the merger talks to know specifically where any job cuts would be focused. But both automakers have a headcount problem today — and if they tie up, there are only two options to ensure it doesn't become a larger problem.
"You grow the top line, or you cut costs," Schuster said. "Competitive pressure is so intense here that I don't think growing the top line is a viable option."
Official statements and announcements about the proposed merger are vague about how cost savings would be achieved through engineering and other other pieces of the companies.
"It's too early to say what they're going to do," Dziczek said. "But absolutely as they laid out, there will be efficiencies. That's going to affect salaried workers."
Staff writer Nora Naughton contributed