Fiat Chrysler Automobiles and Renault promise huge savings from a mega-merger, but such combinations face tall odds because of the industry's long product cycles and problems translating deal blueprints into real world success, industry veterans said.
BMW's 1994 purchase of Rover, and Daimler's 1998 merger with Chrysler Corp. both made sense on paper. The companies promised to hike profits by combining vehicle platforms and engine families. Both combinations proved unworkable in reality, and were unwound.
Renault and Nissan, which since 1999 have been in an alliance designed to share vehicle components, have only managed to use common vehicle platforms in 35 percent of Nissan's products despite an original target of 70 percent, according to Morgan Stanley.
FCA and Renault have raised the stakes for themselves by ruling out plant closures. That increases the pressure to achieve more than $5 billion in promised annual savings from pooling procurement and research investments.
The two companies have yet to fill in many of the blanks in the merger plan put forward by Fiat Chrysler.
Renault's board is expected to act soon to accept the proposal, but that would lead only to a memorandum of understanding to pursue detailed operational and financial plans. A final deal and the legal combination of the two companies could take months to complete if all goes well.
Pressure to cut automotive pollution is driving the latest round of consolidation. Automakers are looking at multibillion-dollar bills to develop electric and hybrid cars and cleaner internal combustion engines.
Fiat Chrysler and Renault are betting they can design common electric vehicle systems, then sell more of them through their respective brands and dealer networks, cutting the cost per car.
Developing new full-electric vehicles can bring more opportunities to share costs from the outset, industry experts said.
"With the emergence of connected, autonomous, electric and shared vehicles, carmakers face immediate investments, so new opportunities for sharing costs have emerged," said Elmar Kades, managing director at Alix Partners.