London - The drive to become more energy-efficient amid concerns over climate change, and the rush to develop mass market electric cars, are key factors behind the proposed merger of Fiat Chrysler with Renault.
The deal, which will create the third-largest force in global motor manufacturing behind Toyota and VW, is the direct result of a dramatic decline in demand for diesel cars, which are considered serious polluters.
The tie-up caught the French car giant’s long-standing associate, Nissan, off-guard, with chief executive Hiroto Saikawa learning of the deal only when it was brought to the Renault board for approval.
The fallout for Nissan will be closely watched in Britain given the importance of its Sunderland plant, one of the most efficient motor manufacturers in Europe.
Among the first moves by Theresa May when she took over as Prime Minister in 2016 was to try to secure the future of the Sunderland plant amid fears Brexit would lead to some production being moved.
Concern about damage to the Earth’s environment, combined with public outrage over the Dieselgate scandal when the German firm Volkswagen was exposed for cheating on fuel emission figures, led Renault and Fiat into each other’s arms.
Whereas the Blair-Brown government, to curb pollution, made huge efforts to persuade motorists to use diesel, subsequent governments advised about its dangers and then Environment Secretary Michael Gove said Britain’s roads must be cleared of all diesel and petrol vehicles by 2040.
Meanwhile, carmakers are struggling with the technology required to mass-produce electric-fuelled cars. And, after this link-up, there could be further copycat mergers and co-operation deals.
One of the most talked about tie-ups has been a possible deal between Indian-owned Jaguar Land Rover, Britain’s flagship car maker, and the French group Peugeot, which owns the UK’s Vauxhall marque. Car firms everywhere are being forced to accelerate the transition from fossil-fuel internal combustion engines to hybrids (half-electric, half-petrol), fully electric cars and engines fuelled by hydrogen.
The result is much pain. Jaguar Land Rover suffered a record loss of £3.6bn (R58.3bn) last year, having invested too much in diesel cars.
Volkswagen, the world’s second-largest car company, is hurting from the £26bn (R421bn), and rising, bill for cheating on its emissions figures. Former executives face criminal charges in the US.
It and other German manufacturers have struggled to meet the tougher EU rules on emissions from exhausts.
Germany’s once all-powerful industry is struggling to make cars compliant with eco-rules and output has plummeted. The Renault-Fiat Chrysler deal completed in super-quick time after they began talking about collaborating on Research & Development for electric cars.
When it was unveiled last Monday both sides emphasised that current production facilities would be unaffected and French ministers have been assured no Renault factories in France would close.
The two firms are spending up to £6bn (R97.2bn) on R&D and innovation, and they promise the cost reductions will not come from plant closures.
But how binding those undertakings prove to be, at a time of overcapacity, is a matter for conjecture.
Crucially, they are convinced they can avoid intervention by EU competition authorities, which have blocked or interfered in takeovers. And it’s not just in Europe that the industry is undergoing great change. US tycoon Elon Musk’s Tesla is establishing itself as the first all-electric car company.
Britain’s Dyson and Google owner Alphabet, are pouring resources into electric and autonomous driving vehicle R&D.
There is another practical issue: how the switch to electric will put a huge strain on world electricity suppliers, when wind and solar power are yet to prove themselves as 100 percent reliable 24/7 suppliers, and nuclear energy is so very expensive. That's notwithstanding the ongoing power crises in South Africa.
So it’s not just the car giants that have to make big decisions but world governments, too.