Fiat Chrysler said on Monday that it proposed a merger with its French rival Renault, forming a global partnership aimed at improving their chances of surviving the coming perilous and costly shift to electric and self-driving cars.
If the deal is consummated, the new company would displace General Motors as the third-largest car company in the world, behind Volkswagen and Toyota.
The companies confirmed reports over the weekend that they were in talks about cooperating. But a full-blown merger goes well beyond what was expected a few days ago, and illustrates the urgency that automakers feel to find partners.
There is a consensus among industry executives and analysts that carmakers must link up to share the cost of a transition away from internal combustion engines to avoid being run over by fast-moving tech industry challengers like Tesla or Uber.
Still, the lesson from past auto mergers is that they often founder on clashing corporate cultures or turf battles, and that predictions of the possible benefits prove overly optimistic. That was the case with Chrysler’s ill-fated merger with Daimler in the late 1990s.
This deal will be particularly tricky because it will inevitably draw the attention of political leaders in Italy and France, who will fight to preserve as many jobs as possible. The French government is Renault’s largest shareholder.
The companies said that their partnership would not result in job losses. Yet it is hard to see how Fiat and Renault can avoid job cuts when their factories are operating below capacity and the European auto industry is suffering a downturn.
Substantial savings are possible if the companies jointly purchase parts and share the cost of research and development. But those savings alone would not be enough to stay competitive over the long term with companies like Toyota that are much more efficient.
Fiat Chrysler and Renault each have things to offer the other, partly addressing each other’s weaknesses. Renault and its Japanese partner Nissan were among the first car companies to build electric vehicles for mass production, whereas Fiat is seen as a laggard.
Fiat Chrysler also offers Renault access to the United States market, where the French have no presence. But neither company is strong in China, which has become the world’s largest car market.
One unanswered question was how the proposed merger would fit in with Renault’s partnership with Nissan and Mitsubishi, known as the Renault Nissan Alliance.
Renault said it hoped that Fiat would join the alliance. If so, the combined entity would be by far the largest carmaker in the world, with a major presence in virtually every corner of the planet. But such a monstrous corporation would be complex and even more difficult to manage than the Renault Nissan Alliance has been.
The relationship between the French and Japanese has been tense since the arrest of Carlos Ghosn, the head of the alliance, in November on accusations of financial wrongdoing and his eventual ouster. Mr. Ghosn has said he is innocent.
The French have pushed to join Renault and Nissan more closely by putting them under the same holding company, but the Japanese brusquely refused that proposal. Nissan, which makes more cars than Renault and is a major player in the United States, has expressed discontent with French dominance of the partnership and sought more autonomy.