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John Elkann and Jean-Dominique Senard plot quiet campaign to succeed where predecessors failed

The plan to unite two of the greatest titans in European carmaking — and the future of the industry itself — was hammered-out over a series of secret meetings at the private residences of industrialists John Elkann and Jean-Dominique Senard.

Fiat Chrysler Automobiles chairman Mr Elkann, heir to Italy’s Agnelli dynasty that founded Fiat in 1899, would host in his Turin home. His counterpart at Renault, Mr Senard, the former Michelin CEO parachuted in to stabilise Renault in January, would do the same in Paris. The setting, said one adviser, “let the leaders think big”.

Their meetings became more frequent and urgent, said people close to the situation, as talks advanced from the idea of loose partnership to a full merger between FCA and Renault. In the past two weeks, several such meetings took place.

Both the secrecy and the intimacy were vital, said advisers, given the acute sensitivities surrounding Renault’s 20-year alliance with Nissan and the spectacular downfall of its chief architect, Carlos Ghosn. It was his sudden absence and the promotion of Mr Senard that made a Renault-FCA merger possible.

Mr Ghosn remains under strict bail conditions in Tokyo as he awaits trial on financial malfeasance charges he flatly denies. His shadow over Renault-FCA talks has been constant, though. A merger between the two companies had eluded him and Mr Elkann’s predecessor at FCA, the late Sergio Marchionne.

Despite both men’s reputation as skilful managers, the two could not hit on the formula to navigate the industry rivalries, governments, shareholders and unions that stood in the way of a deal. Marchionne spent his final years calling for consolidation among carmakers, believing that survival depended upon it. Some close to FCA management said Mr Ghosn may never have had his heart in the idea.

Where they failed, the lower-profile negotiations of Mr Elkann and Mr Senard appeared to have succeeded: on Monday FCA proposed to merge with Renault in an all-share deal that would give the respective shareholders of each company a 50 per cent stake in the combined entity. Renault welcomed the “friendly” proposal after a board meeting, saying it would evaluate it.

“Elkann and Senard had the vision and pragmatism to make this happen,” one person said. “When you had the two big guys [Ghosn and Marchionne] there, it would have been harder to engineer this deal because of their personalities.”

Investors cheered, sending Renault shares 12 per cent higher and FCA up by 8 per cent. Mr Elkann described it as “an unthinkable day”, speaking at Milan’s Bocconi University, the same place he was a decade ago when Fiat combined with Chrysler. His family investment vehicle, Exor, which owns 29 per cent of FCA, will become the largest shareholder in the combined group.

The transaction would form the world’s third-largest carmaker, behind Volkswagen and Toyota, responsible for 8.7m vehicles a year, with sales of €170bn and profits of €8bn. The merged entity would have a market value above €35bn based on Monday’s share prices.

A merger came into view only in the past few weeks when Mr Elkann discovered that Renault had given up on its effort to merge with Nissan and rang Mr Senard.

During their exchanges, Mr Senard made it clear to Mr Elkann that a deal with Nissan, which owns 15 per cent of Renault and in which the French carmaker holds a 43 per cent stake, would be close to impossible, said a person close to the group.

“It’s been really hard to find ways to talk to our Japanese counterparts . . . they are currently completely irrational,” said a person close to Renault while referring to Nissan’s chief executive Hiroto Saikawa.

The opening allowed Mr Elkann, stepping into the role of dealmaker, to instruct his team working under the code name “Fermi” on project “Newton” to put together a deal for “Rutherford”. All are references to famous physicists.

Mr Elkann met Emmanuel Macron, the president of France, which has a 15 per cent stake in Renault, to reassure the French leader that the transaction would create a European champion able to rival US and Asian carmakers.

FCA panicked when the talks were revealed by the Financial Times on Saturday, said the person close to Renault. That forced a sleepless sprint to draft the proposal issued on Monday, which was light on details.

It was a relationship that dated back to when Mr Senard ran Michelin that laid the groundwork for a deal. The two industrialists, who share similar genteel manners in contrast to their domineering former executives, conversed in French, which Mr Elkann is fluent in having studied in an elite Paris lycée, to hash out the terms.

“There was almost a paternalistic relationship between the two men,” said one person with knowledge of the talks. “The culture at Michelin is almost that of a family business . . . they are not far apart culturally.”

Now the two men, Mr Elkann as future chairman and Mr Senard as chief executive of the combined group, must see through a deal that promises to unlock €5bn in savings and prove that scale can offset the forces of technological disruption and reduce the costs that are battering carmakers.

Apart from navigating the concerns of competition authorities, they must also push through a deal that risks inflaming already high political tensions between France and Italy, while alliance partner and Renault shareholder Nissan will want its voice heard.

“When you have so many parties and the government involved, you just don’t know. From a market standpoint, it makes sense. But there are a lot of voices to get right,” said one person working on the deal.

Both the French and Italian governments have given the go-ahead for the discussions with Italy’s deputy prime minister, Matteo Salvini, telling journalists that “Fiat Chrysler expanding is good news for Italy” and calling it a “brilliant operation that preserves every single job while creating a European car industry giant”.

FCA has pledged there will be no plant closures as part of the deal, a crucial element in keeping the French state on board — job losses would be politically unpalatable for the already under-pressure government. “This operation will be viable if it has a positive impact on employment in France,” said one senior government official in France with labour unions already voicing their disapproval.

Complicating the deal is also the presence of Renault’s longtime partner Nissan. Longer term, both FCA and Renault are open to the idea of a three-way merger that includes the Japanese carmaker, said people close to the European carmakers. Prospects of Nissan, which firmly rejected Renault’s merger proposal in mid-April, joining FCA and Renault remain dim for now.

Both Nissan and Japanese government officials reacted with caution to the talks, which they only found out about over the weekend. The Japanese counterparts were deliberately kept in the dark to avoid any leaks, said a person close to Renault, as they feared that Nissan would try to scupper any potential deal.

At first glance, the structure of FCA’s proposal should appeal to Nissan. Under a new Dutch-based holding company structure, the Japanese carmaker will be granted voting rights on its stake in the merged group and a seat on the board. Renault will also temporarily shelve plans for a full merger with Nissan, which will allow Mr Saikawa to focus on rebuilding its struggling US business.

Early on Monday, Mr Saikawa told reporters camped outside his house that he was “fully open to constructive discussions” to strengthen its alliance with Renault when asked about talks with FCA.

One person familiar with the Japanese government’s thinking said it was premature to discuss prospects of Nissan integrating with the new merged entity on those terms alone. “Joining an expanded alliance is a possibility but a merger is a completely different story,” another person close to Nissan’s board said.

And while many analysts applauded the deal, some struck a more cautious note: This “seems to be founded on the view that scale is going to be increasingly critical for survival in the auto industry. This makes sense on PowerPoint but rarely works in the real world. Regional scale is more important than global scale,” said Max Warburton at Bernstein.

If it succeeds, however, it will be a triumph for Mr Elkann years in the making. One person involved said: “Both Marchionne and Ghosn had a vision that you need to produce and sell 5,6,7m cars to be relevant. For Marchionne, it is sad because he would have been proud of this.”