(Bloomberg) -- Convincing the stakeholders of Renault SA (PA:RENA) and Fiat Chrysler Automobiles NV (NYSE:FCAU) on the merits of a merger may be the easy part. The hard task is selling the deal to Renault’s alliance partner Nissan Motor Co., (T:7201) as well as labor groups and politicians wary of job cuts.
Jean-Dominique Senard, who’s been tapped to lead the combined Franco-Italian carmaker, is in Tokyo to make what may be the sales pitch of his career. In an interview on Thursday, he painted a picture of a grand alliance making and selling cars across the globe, keeping people employed and churning out profits.
“It can only happen if people are open to it,” said Senard, 66, who attended a meeting for the board overseeing the alliance between Nissan, Renault and Mitsubishi Motors Corp. He came to explain the merits of the Fiat-Renault deal to the Japanese executives, who started Wednesday’s meeting with many questions. By the end, the mood lightened and they were positive, he said.
“A closer partnership can only improve the alliance,” Senard said. Nissan, which has pushed back in the past at attempts for closer integration, “understood the message I brought here, although obviously they can’t digest it in one night,” he added.
After spending three days in Japan, Senard will return to Europe to work on bringing Fiat Chrysler and Renault together. He doesn’t anticipate any serious regulatory hurdles for the merger. Asked whether the joining of two European automakers would result in job cuts, Senard said the deal "doesn't call for human sacrifice."
The merger won't involve any plant closures, according to Fiat, although it didn't mention any potential job cuts when the deal was announced. The combination also has the blessing of the Italian and French governments, which are constantly on guard against the risk of labor unrest.
The transaction would be structured as a 50-50 ownership through a Dutch holding company, with Renault shareholders, including the French government, getting an implied premium of about 10%. Renault’s board is expected to give preliminary approval to the proposal as soon as next week, people familiar with the matter have said. Senard said on Thursday that the deal will take about a year to complete.
Behind the push to consolidate are the various headwinds the industry is facing. Sales are decelerating in the world’s biggest car markets — China, the U.S. and Europe — bringing fresh urgency to consolidate. Automakers worldwide are facing intense pressure to spend heavily on electrification and autonomous vehicles, and adapting to trends such as car-sharing.
Renault and Fiat Chrysler estimate cost savings of more than 5 billion euros ($5.6 billion) from the merger. The automakers will focus on reducing platforms, simplifying product lines and focusing on quality and branding, Senard said. "All of the brands are very famous," he said. "Some have to be re-enhanced."
In order to sell more cars, Senard indicated profit-eroding price cuts in North America by Nissan and Chrysler would have to end. "It needs to be about quality boosting market share," he said.
Asked about recent comments by Carlos Tavares, the CEO of Peugeot owner Groupe PSA and former Ghosn protege, calling the deal a "virtual takeover" of Renault and that it could weaken or unwind the alliance with Nissan, Senard said: "Everyone is free to say what they think."
Nissan could be a key part of forging a global group that could produce 15 million vehicles a year. The Yokohama-based company would complement the merged entity because of its strong presence in China, Japan and the rest of Asia, as well as its electric-car technology.
There are signs that Senard’s charm offensive is yielding some results. Following the meeting, Nissan Chief Executive Officer Hiroto Saikawa said he saw potential opportunities for the existing alliance in Fiat Chrysler’s merger proposal, though he plans to study the matter further. As Saikawa put it, “we don’t consider this as a minus.”
As to Senard, he said Nissan is already benefiting from the proposed merger given the increase in the Japanese carmaker’s shares on news of the deal. Nissan, 43% owned by Renault, would also finally have more tangible influence by gaining greater say in the alliance, he said.
Under the proposed merger of Fiat Chrysler and Renault, Nissan would get 7.5% of the combined entity. The Japanese carmaker would be able to vote with those shares, unlike with its current holdings, which carry no voting rights. A merger would also dilute the French state’s control over Renault, and indirectly over Nissan, easing a concern it has had for years.
Nissan needs some good news. The company recently forecast weak operating profit and cut its dividend for the first time in a decade. Senard said Nissan currently needs to focus on its profitability and that it’s in Renault’s interest for its Japanese partner to turn itself around.
Fiat also said the combination would help cut costs by an additional 1 billion euros for Nissan and Mitsubishi Motors.
The alliance was destabilized late last year with the arrest of Carlos Ghosn, its architect and chairman, for alleged financial crimes during his time as leader of Nissan. Ghosn has denied all charges and is preparing for his trial next year. Although Nissan and Renault have been partners for two decades, the Japanese automaker isn’t in a position to block the deal because the merger wouldn’t breach terms of their partnership.
Senard, who replaced Ghosn as chairman of Renault and the alliance, has sought to restore stability following his predecessor’s arrest. The former Michelin (PA:MICP) CEO worked earlier this year with Nissan to craft a new governance structure to oversee the partnership, giving up concessions over board seats to assuage the Japanese firm’s concerns.
"With Nissan, this is the first truly global car alliance," Senard said.
