Fiat Chrysler, Renault pursue $35 billion merger to fight auto upheaval

MILAN/PARIS -- Fiat Chrysler pitched a finely balanced merger of equals to Renault on Monday to tackle the costs of far-reaching technological and regulatory changes by creating the world's third-biggest automaker.

If it goes ahead, the $35 billion-plus tie-up would alter the landscape for rivals including General Motors and Peugeot maker PSA Group, which recently held inconclusive talks with Fiat Chrysler (FCA), and could spur more deals.

Renault said it was studying the proposal from Italian-American FCA with interest, and considered it friendly.

Shares in both companies jumped more than 10 percent as investors welcomed the prospect of an enlarged business capable of producing more than 8.7 million vehicles a year and aiming for 5 billion euros ($5.6 billion) in annual savings.

It would rank third in the global auto industry behind Japan's Toyota and Germany's Volkswagen.

But analysts also warned of big complications, including Renault's existing alliance with Nissan, the French state's role as Renault's largest shareholder and potential opposition from politicians and workers to any cutbacks.

"The market will be careful with these synergy numbers as much has been promised before and there isn’t a single merger of equals that has ever succeeded in autos," Evercore ISI analyst Arndt Ellinghorst said.

With these sensitivities in mind, FCA proposed an all-share merger under a listed Dutch holding company. After a 2.5 billion euro dividend for existing FCA shareholders - giving a big upfront boost to the Agnelli family that controls 29 percent of FCA - investors in each firm would hold half of the new entity.

The merged group would be chaired by Agnelli family scion John Elkann, sources familiar with the talks told Reuters, while Renault chairman Jean-Dominique Senard would likely become CEO.

Renault's board will hold informal work sessions within days and likely decide next week whether to enter an agreement with FCA to proceed with merger talks, two sources said.

Italian Deputy Prime Minister Matteo Salvini welcomed the merger proposal but said Rome may need to acquire a stake, balancing France's 15 percent Renault holding - which is set to be diluted to 7.5 percent of the combined group.

A deal could also have profound repercussions for Renault's 20-year-old alliance with Nissan, already weakened by the crisis surrounding the arrest and ouster of former chairman Carlos Ghosn late last year. The Japanese carmaker has yet to comment on FCA's proposal.

In a letter to employees seen by Reuters, FCA chief executive Mike Manley cautioned a merger with Renault could take more than a year to finalize.

'BOLD DECISIONS'

A deal could help both companies address some of the shortcomings that have led their market valuations to lag major rivals, as well as the shift to electric and self-driving technologies amid tightening emissions regulations.

FCA has a highly profitable businesses in North America with its RAM trucks and Jeep brand, but lost money last quarter in Europe, where most of its plants are running below 50 percent capacity and it faces a struggle with new emissions curbs.

Renault, by contrast, was an early mover in electric cars, has relatively fuel-efficient engine technologies and a strong presence in emerging markets, but no US business.

A deal would do little, however, to address both firms' limited presence in China, the world's biggest auto market.

It would also create the challenge of managing a large number of brands, from high-end Maseratis to budget Dacias.

The huge cost of countering disruptive new entrants such as Tesla's electric cars or future autonomous vehicles from Uber and Google has pushed other automakers to collaborate, including Volkswagen and Ford.

FCA-Renault, like almost every possible automotive pairing, has been studied intermittently for years by dealmakers. But the fractious relations between Ghosn and FCA's long-standing boss Sergio Marchionne made constructive talks impossible before Marchionne's sudden death last July, banking sources said.

Renault shares were up 15 percent to 57.46 euros at 1320 GMT, while FCA's Milan-listed stock was up 11.3 percent at 12.75 euros. PSA , widely seen as an industry consolidator, was off 3 percent.

PARIS AND ROME

The French government, Renault's biggest shareholder, supports a merger with FCA in principle but will need to see more details, its main spokeswoman said.

France will be "particularly vigilant regarding employment and industrial footprint," another Paris official said, adding any deal must safeguard Renault's alliance with Nissan, which recently rebuffed a merger proposal from its partner.

Seeking to soothe concerns, FCA said the deal plans "are not predicated on plant closures, but would be achieved through more capital-efficient investment".

The carmakers have given commitments to maintain industrial jobs and sites, one source said - leaving room for white-collar and engineering layoffs as well as some plant downsizing.

Early areas for potential convergence include Renault's next electric car platform being launched at its Douai site in France, the source said, adding all of Renault's board members backed the decision to study FCA's proposal with the exception of the leftist CGT union, which abstained.

In a sign of potential future tensions, the CGT demanded the French state retained a blocking stake in any merged group.

Appealing to Nissan, which is 43.4 percent-owned by Renault, FCA said the Japanese carmaker would nominate a director to the 11-member board of the new company. Nissan and affiliate Mitsubishi would also benefit from 1 billion euros in cost and investment savings, it added.

Decision-making by such a board is unlikely to be straightforward, some analysts warned.

"We now have the French, the Italians, the Japanese and the Americans needing to find consensus on the board of a Dutch company, where the French state stands to lose its special status," Ellinghorst said.

"This requires quite a bit of creativity."

source: news.abs-cbn.com

After New York City’s war with Amazon, Uber could be next

NEW YORK — After New York City and Amazon went to war over a new campus in Queens, the city is heading into battle with another tech giant: Uber.

Mayor Bill de Blasio approved a yearlong cap on Uber vehicles last summer, making New York the first major US city to rein in the booming ride-hail company. Now de Blasio wants to extend the cap, prompting Uber to sue the city last week to overturn the law.

Uber has fiercely opposed the cap, arguing that it hurts New Yorkers who rely on the app, especially outside Manhattan, where there are fewer transit options. The lawsuit called the city’s regulatory approach “unfortunate, irresponsible and irrational.”

De Blasio, a Democrat with presidential ambitions, responded by saying the city’s new rules — both the cap and a measure to raise wages for drivers — were needed.

“No legal challenge changes the fact that Uber made congestion on our roads worse and paid their drivers less than a living wage,” said Seth Stein, a spokesman for the mayor. “The city’s new laws aim to change that.”

Like many other cities across the world, New York is struggling to respond to the explosive growth of the ride-hailing industry. The influx of vehicles has raised concerns about street congestion, working conditions for drivers, the decimation of the yellow cab industry and the siphoning of riders from public transit.

The lawsuit comes at a critical moment for Uber and its main competitor, Lyft, as both companies rush to go public. Uber, which could be valued as high as $120 billion, is likely to be one of the biggest-ever public offerings by a tech company.

The two ride-hail companies have bristled over new regulations in New York, Uber’s largest market in the United States. Lyft recently sued to stop the rules aimed at raising driver pay.

Uber and Lyft are also battling each other to dominate New York’s thriving bike markets. Lyft bought Motivate, the company that operates CitiBike, the city’s popular bike-share program. Uber bought another bike company called Jump and began offering electric bikes in the Bronx and Staten Island.

Uber supports the driver pay rules, but argued that the cap hurts drivers who want to join its app.

“It is disappointing to see the de Blasio administration remain singularly focused on a cap that evidence suggests is doing nothing to relieve congestion while preventing thousands of New Yorkers from earning a living wage,” Josh Gold, a spokesman for Uber, said in a statement.

Some business leaders worry that Amazon’s decision to abandon its deal with New York could hurt the city’s image as a tech hub.

But Nicole Gelinas, a senior fellow at the Manhattan Institute, said the struggle with Uber is not a tech issue — it’s about worsening street traffic.

“We’re not really afraid of being branded anti-tech,” Gelinas said. "In the long term, our problem is how do we deal with all of this growth — and not the risk that we’re going to drive away that growth with a little bit of rhetoric and a little regulation.”

De Blasio has a bitter history with Uber. When the mayor first proposed a cap in 2015, Uber launched an aggressive attack, introducing a “de Blasio view” in the company’s app to blame him for long wait times. Uber won the debate and became shorthand in his administration for an embarrassing defeat.

But Uber was on the defensive last year when the cap idea was revived by Corey Johnson, the City Council speaker. Uber’s reputation had been harmed by accusations of gender discrimination and other scandals. It hired a new chief executive and a new leader for New York to try to improve its image.

The number of for-hire vehicles in the city has surged to more than 100,000 vehicles, from about 60,000 in 2015. But while Uber and other companies are flourishing, many of their drivers are not. About 40 percent of drivers have incomes so low that they qualify for Medicaid and about 18 percent qualify for food stamps, according to a study by prominent economists last year.

The cap was expected to last a year while the city studied the proliferation of ride-hail trips. At the end of that period, the city’s taxi commission would review the number of vehicle licenses and decide on how they would be regulated.

Last month, de Blasio said in a radio interview that he wanted to “put ongoing caps in place on the for-hire vehicles.” Officials at City Hall confirmed that the mayor was considering extending the cap.

Uber’s lawsuit argues that it was not legal for the city to delegate the power to cap vehicles to the taxi commission. If Uber cannot meet growing rider demand, the lawsuit says that could hurt the state’s efforts to raise money for the subway through new fees on ride-hail trips.

The lawsuit, filed in state supreme court in Manhattan, questions the city’s motives: “This is less a ‘study’ and more a ‘post hoc rationalization’ of a remedy the city appears to have already selected.”

Lyft also opposes a permanent cap. “Any extension of this misguided policy would do even more significant, long-term damage to drivers and riders,” Lyft said in a statement.

The City Council is proud of the new regulations imposed on the ride-hailing industry and had the authority to approve them, said Jacob Tugendrajch, a spokesman for Johnson. The speaker, his office said, wants the taxi commission to make a decision about any future limits on vehicles based on data from its study.

The city’s taxi commissioner, Meera Joshi, recently announced that she was stepping down in March. Her successor will have a powerful role in determining the industry’s future.

In a separate lawsuit, Lyft challenged the city’s rules to raise driver wages to more than $17 an hour. Lyft claims the rules give Uber an unfair advantage because it judges companies differently based on their “utilization rate,” or how often drivers have a passenger in their car versus driving around empty.

The approach gives “the largest company with the biggest market share a built-in and perpetual advantage over companies with lower utilizations,” Lyft’s lawsuit said.

Lyft has sold itself as the more ethical ride-hail option. But the lawsuit hurt its image among some riders like Brad Lander, a councilman from Brooklyn, who said he deleted the app.

After facing harsh criticism, Lyft announced that it would comply with the new pay rules while its legal case proceeded.

Uber and Lyft say they care about public policy, but the lawsuits show their first priority is self interest, said Bruce Schaller, a former city transportation official who has closely studied the industry. The companies face a difficult challenge of balancing both profits and their public image. In this case, Schaller said, Uber chose to protect its bottom line.

“Uber in particular has been playing super nice since its change in management a year ago and particularly as they get closer to the IPO,” he said. “Suing the biggest city in the country isn’t playing super nice.”

source: news.abs-cbn.com

Tesla to build self-driving tech into all cars

SAN FRANCISCO - Tesla will build self-driving technology into all the electric cars it makes, running it in "shadow" mode to gather data on whether it is safer than having people in control.

"Every car that Tesla produces from here on out will have the full autonomy capability," said Tesla co-founder and chief executive Elon Musk.

A new onboard computer with 40 times the processing power of the previous generation will run a new "neural net" for vision, sonar and radar sensors, he said.

During a conference call with reporters, Musk referred to the hardware as "basically a super-computer in a car," different from auto-pilot technology to date.

It will be up to regulators and the public as to when the self-driving capabilities will actually be put to use on roads, according to Musk.

Meanwhile, the system will run in "shadow mode" to gather data regarding when it might have avoided or caused accidents if it was in command.

Musk hoped that Tesla would one day be able to impress regulators with a statistically significant amount of data showing the autonomous driving technology would avoid crashes and save lives.

"Then we are at a point where we can allow it to take action," Musk said of amassing data showing the system's merits.

Upgrading existing cars with the autonomous driving hardware was not practical, according to Tesla.

"It would be like giving someone a spinal cord transplant; not advisable," Musk said on the call.

MILLIONS OF MILES

Tesla planned to calibrate the system using feedback from millions of miles of real-world driving before enabling the new hardware.

In the meantime, Teslas with the first-generation Autopilot technology will lack some standard safety features such as automatic breaking and collision warnings.

As features are validated, they will be enabled with over-the-air software updated.

The United States last month unveiled a sweeping new regulatory framework for the unexpectedly rapid rise of self-driving automobile technology, just days after Uber broke ground with its first driverless taxis.

US Transportation Secretary Anthony Foxx said the federal government intends to set the safety standards for cars of the future where no human is involved in the driving, even while individual states still regulate cars with humans behind the wheel.

Announcing a 15-point safety assessment for driverless car systems, Foxx stressed that the government wants to work with developers -- which include most large automakers as well as tech giants such as Uber and Alphabet (Google) -- without stifling their efforts.

A Self-Driving Coalition for Safer Streets boasts founding members including Ford, Google, Lyft, Uber and Volvo.

The coalition supports guidelines that standardize self-driving regulations across the country, avoiding confusion and lost industry momentum.

EXPECTATIONS

Meanwhile, Germany wants Tesla to stop advertising the "autopilot" function on its cars because it leads to false customer expectations, as the system comes under scrutiny following two fatal crashes.

Transport regulator KBA has written to the company, telling it: "In order to prevent misunderstandings and false expectations from clients, we are asking that the misleading term 'Autopilot' no longer be used in advertisements for the system."

The KBA letter cited in Bild am Sonntag was confirmed to AFP by the transport ministry.

Germany has been conducting an investigation into the autopilot system in vehicles made by electric carmaker Tesla, which has been available with its Model S series since October 2015.

Questions have been raised over the system after two fatal crashes, one in northern China in January and another in the US state of Florida in May.

In September, a Tesla electric car crashed into a tourist bus on a motorway in northern Germany, lightly injuring the driver who said he had activated the vehicle's autopilot system.

At the time, Tesla said the driver had confirmed the autopilot was "functioning properly and... was unrelated to the accident."

source: www.abs-cbnnews.com

Maserati partners with Petersen Automotive Museum in Los Angeles

MANILA, Philippines – Why does a Maserati look, sound and feel so uniquely different? How does Maserati honor bespoke traditions, built over its 101-year history, to create a thoroughly modern, state-of-the-art driving experience?

To answer these questions and share the passion that defines Maserati, the Trident has partnered with the totally transformed Petersen Automotive Museum to create an immersive exhibit, “Made in Italy – Design to Line” featuring the company’s flagship super sport sedan, the Maserati Quattroporte S Q4.  The exhibit premiered in conjunction with the reopening of Petersen Automotive Museum last Dec. 5.

“Maserati is in love with the automobile. With its profound history, the company is deeply committed to sharing its passion with this generation and the next,” says Christian Gobber, president & CEO, Maserati North America, Inc. “Maserati’s support of the Petersen Automotive Museum with our education exhibit, ‘Made in Italy — Design to Line,’ made perfect sense from both global and local perspectives, given that the museum is located in Los Angeles, at the very heart of car culture.”

Located on the Museum’s second floor, the dedicated gallery tells the story of how Maserati — a modern, high-tech, high performance vehicle — develops from a concept to reality. The story of this journey is told through five chapters: Raw materials; body shell; drivetrain; trims and finishes; and final product.

Maserati is one of the world’s most distinguished automobile manufacturers, with a reputation for engineering excellence and for creating cars of exceptional beauty. In 1963, Maserati mounted a race engine in a four-door sedan, forever changing the way the world looked at luxury motoring. Today’s sixth-generation Quattroporte continues the Maserati tradition of building cars that blend high performance and supreme comfort, with a flair for design unique to Italian automobiles. Quattroporte’s sporting pedigree boasts Maserati’s remarkable racing heritage—including historic wins at the Indianapolis 500 and in Formula 1 with legendary driver Juan Manuel Fangio behind the wheel.

source: philstar.com

Fiat strikes $4.35-B deal to buy rest of Chrysler

MILAN/DETROIT - Italian carmaker Fiat SpA struck a $4.35 billion deal to gain full control of Chrysler Group LLC, ending more than a year of tense talks that have obstructed Chief Executive Sergio Marchionne's efforts to combine the two automakers' resources.

The agreement, announced on Wednesday, cements Marchionne's reputation as the industry's consummate dealmaker about a decade after he took the helm of Fiat as a car business newcomer, analysts and bankers said.

But it remains to be seen whether a merger will be enough to cut Fiat's losses in Europe. Marchionne's plan to shore up Fiat depends on the ability to share technology, cash and dealer networks with Chrysler, the No. 3 U.S. automaker.

"This is an increasingly American company now, because in Europe, and especially in Italy, the business conditions remain difficult," said Andrea Giuricin, transport analyst at Milan's Bicocca University. "Fiat has already lost many of its market positions in Europe and it won't be easy to recover that."

Fiat will acquire the 41.46 percent stake in Chrysler it did not already own from a retiree healthcare trust affiliated with the United Auto Workers union. The trust, known as a voluntary employee beneficiary association or VEBA, will receive $3.65 billion in cash for the stake, $1.9 billion of which will come from Chrysler and $1.75 billion from Fiat. After the deal closes, Chrysler has committed to giving the UAW trust another $700 million over three years.

The deal is expected to close on or before Jan 20. Fiat said that because of how the deal is structured it will not need to make any capital increase through a rights issue.

The VEBA's payout is less rich than some analysts expected. The sale of the UAW trust's stake values the No. 3 U.S. automaker at less than $9 billion. When factoring in the additional $700 million, Chrysler is worth $10.5 billion.

"We thought they were going to have to pay a lot more than that," a London-based analyst at a major investment bank said. "The market's going to love this - Marchionne's done it again. He's brought in a deal that looks like a cracking one on the face of it and he doesn't need to do a capital increase."

'DEFINING MOMENT'

Marchionne, who has run both automakers since Chrysler's 2009 U.S. government-funded bankruptcy restructuring, aims to merge Fiat and Chrysler into the world's seventh-largest auto group.

But he has been at odds over the U.S. automaker's worth with the trust, which was pushing for a payout of more than $5 billion. In September, the trust exercised an option enshrined in bankruptcy documents to force Chrysler to file for an initial public offering.

Wednesday's deal will allow Chrysler to avoid an IPO.

In a statement, Marchionne called the buyout a defining moment for the two companies.

"The unified ownership structure will now allow us to fully execute our vision of creating a global automaker," he said.

The Chrysler buyout talks have been closely watched by debt and equity investors as Fiat's long-term plan to cut losses in Europe depends on its ability to deepen ties with Chrysler.

Chrysler is now a profit center for Fiat, but the two companies currently are forced to manage their finances separately. A full merger will make it easier - but not automatic - to combine the cash pools of the two companies, giving Fiat more funds to expand its product lineup.

The UAW trust was created in 2007 as a way for General Motors Co, Ford Motor Co and Chrysler to offload their obligations to pay retiree healthcare benefits.

Medical benefits for GM, Ford and Chrysler retirees are handled in separate accounts and each account was initially to be funded with cash. But during the 2009 financial crisis, the VEBA agreed to accept stakes in GM and Chrysler in lieu of cash.

source: www.abs-cbnnews.com

BMW, Toyota agree on joint sportscar platform

FRANKFURT- Carmakers BMW and Toyota have agreed to develop a joint platform for sportscars, BMW's development chief Herbert Diess told a German newspaper.

"We have agreed on a joint architecture for a sports car. What is important is that there will be two different vehicles that are authentic to the two brands," Frankfurter Allgemeine Zeitung on Monday quoted Diess as saying.

BMW and Toyota had in January signed an agreement to cooperate on various areas including lithium-air batteries and lightweight technology.

They also said at the time they would study the potential for a joint platform for a mid-sized sports vehicle in a feasibility study to be completed by the end of 2013.

Frankfurter Allgemeine said that Diess declined to provide details on the models that would result from the cooperation.

source: www.abs-cbnnews.com

How many Mercedes staff does it take to sell a car?

FRANKFURT - How many Mercedes staff does it take to sell a car? The answer, in the luxury carmaker's German showrooms, is more than it takes to shift an Audi - just part of the cost gap Daimler wants to close with its premium rivals.

Among the top three, Mercedes depends on its unprofitable company-owned dealerships for a bigger share of domestic sales than either Volkswagen's Audi or BMW, which rely more on franchises.

Now, according to documents seen by Reuters, Chief Executive Dieter Zetsche is targeting the company's "own retail" operations as part of a promised 2 billion euro ($2.6 billion) savings drive.

Daimler, already in talks to sell four German outlets, could mount a bigger sell-off if those transactions go well, a person familiar with the company's thinking told Reuters.

"Management wants to try this out to see exactly how it would work in practice," said the person, who asked not to be named.

"They are gathering experience that could serve as a blueprint," he said, adding "Zetsche is no fan of own retail."

The rethink opens a home front in Daimler's battle to lift profitability to the 2013 operating margin target of 10 percent it set three years ago, only to shelve it in October.

Zetsche, 60, has so far failed to put Daimler on course to keep its pledge to overtake Audi and reclaim the crown from BMW by 2020 - or even trim their lead in sales and profit. Daimler further cut its guidance late last month.

Germany is the second-biggest car market after the United States for Mercedes, which reported a 7.1 percent margin last year, compared with 10.9 percent at BMW's car business and 11 percent at Audi's.

Not including Smart, Daimler owns 98 Mercedes car showrooms that account for about half of all the brand's German car sales.

By comparison BMW's 43 owned dealerships contribute only about a quarter of its volumes in Germany, and Audi's 16 in-house outlets account for less than 10 percent.

Daimler is already in talks to sell two dealerships in northern Germany and two more in the west to existing franchise holders, sources said.

By selling off more outlets, Mercedes could cut its 16,000-strong German retail staff and associated costs including vacation pay, Christmas bonuses, corporate pensions and profit shares - perks that most franchise staff can only dream of.

"Our own retail showrooms naturally have to be competitive when benchmarked against franchise dealers," Daimler said in an e-mailed statement, adding this had become "ever more challenging" in its weakening domestic market.

"There is currently no final concept for restructuring the group's own retail network in Germany, but different options are still being evaluated," the company said. It declined to comment specifically on disposals.

Car dealerships are typically a 2-4 percent margin business at best, which drags down overall margins for luxury manufacturers.

Daimler said its own German sales staff - a third of which sell commercial trucks and delivery vans - "watered down" group profit with a negative 0.3 percent return on sales last year, according to an internal presentation.

That would amount to a loss of more than 30 million euros on 11 billion in revenue.

Based on available data, it took an average 3.8 employees to sell a Daimler car each week last year, while it took only 3.2 to get an Audi off its in-house forecourts.

BMW needed roughly 4.5 employees, however, though companies warn such comparisons are only approximate because staff numbers can include servicing and other non-sales personnel.

INTERNAL OBSTACLES

Daimler isn't the only one unhappy with its low-margin retail business. A job guarantee for the roughly 6,200 high-wage BMW sales staff in Germany expired in December, and unions fear management views some of the 43 retail stores as excess flab.

"There are no concrete closure plans in the desk drawer, but we are permanently examining the efficiency of our own dealerships," a BMW spokeswoman said.

BMW may have provided a clue about its future strategy, after acquiring an insolvent Munich dealer during the 2009 financial crisis. In a break with the past, BMW chose not to integrate the business with its retail network, preferring to keep it a separate unit that offers fewer employee benefits.

Sometimes luxury carmakers need wholly owned showrooms - particularly in fashionable downtown areas where independent dealers struggle to run a viable business - to give faster, unfiltered customer feedback to aid product development and take on slower selling models other dealers won't order.

But Daimler's heavy reliance on them may become a problem as the Internet changes the way people buy cars, and company dealerships typically underperform better-run franchises, said Pieter van Rosmalen, automotive retail specialist with MSX International.

Van Rosmalen cited companies like Penske Automotive Group PAG.N among possible interested parties for any Mercedes showrooms that are put up for sale.

"I bet you if a German premium carmaker put its own showrooms up for sale, then some of the larger retailers like Penske would buy it," he said.

Penske, which describes its general acquisitions policy as "opportunistic", declined to comment on Daimler outlets, but the company has recently expanded into crisis-hit Europe by buying up some Italian BMW dealerships.

Other observers are sceptical that Daimler could clear the internal obstacles to selling off its dealerships, including a supervisory board where staff are heavily represented.

"Management wants to do something," said London-based Credit Suisse analyst Erich Hauser.

"But I ask myself whether this is going to be another of those Daimler stories where the goodwill is there but nothing happens in the end."

source: www.abs-cbnnews.com