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When the U.S. auto industry was close to collapse in 2008, General Motors did the unthinkable and quietly proposed a merger with cross-town rival Ford Motor Co.

It didn’t happen – GM ended up filing for Chapter 11, while Ford managed to avoid a bailout. But the fact they even broached the matter spoke volumes about the pressures the Detroit 3 rivals were under.

Now Europe’s auto industry has its own pause-and-gasp-for-breath equivalent. On Monday, Fiat Chrysler Automobiles said it hopes to merge with France’s Renault to form the world’s third-largest carmaker (or by far the largest if you include Renault’s alliance partner Nissan, which arguably one should).

French automaker Renault said Monday that it would study “with interest” a 50-50 merger proposal from Fiat Chrysler, a deal that could reshape the industry as Renault reviews its options following the arrest in Japan of its chief executive.

After a board meeting over what it termed a “friendly” offer, Renault said it would enter talks on a merger that would forge the world’s third-largest automaker.

Investors cheered the prospect, with Renault’s shares soaring 15 percent in afternoon trading in Paris, and Fiat Chrysler stock up more than 10 percent in Milan.A deal would give Fiat access in particular to Renault’s electric car technologies, allowing it to meet the strict CO2 limits being enacted by the European Commission.

Renault for its part might be able to tap the US market thanks to Fiat Chrysler’s extensive operations in North America.

“Given the investments and the technological advances that are going to be necessary, there’s isn’t really a choice, you have to reach a critical mass,” said Flavien Neuvy of the Cetelem Observatory research group.

There are attractions in collaboration, but this merger proposal goes well beyond a more limited alliance or partnership. So why is Fiat’s billionaire chairman John Elkann taking such a big risk?

For one neither Fiat nor Renault is loss-making or facing imminent collapse. But both face painful industry upheaval: car sales are slowing, just as the costs of developing electric vehicles and of complying with ever-stricter emissions targets are surging. Fiat thinks the answer is to achieve huge scale and thereby share the financial burden in meeting those challenges. Is it?

Due to its limited financial resources, Fiat is a laggard in electric vehicles while Renault is an acknowledged leader. But thanks to its acquired Jeep and Ram brands, Fiat has a very profitable truck and SUV business in the U.S. By contrast, Fiat’s European operations are hardly profitable, which may explain why it picked Renault as a potential merger partner over Peugeot SA, whose sales are more heavily skewed towards Europe.

Then there are the cost and investment savings, which Fiat estimates could total 5 billion euros annually. There are reasons to be skeptical about that figure. No factory closures are planned, which is typically one of the quickest and most painful ways to slash expenses. Instead, the savings are expected to come from common purchasing, shared vehicle platforms and R&D. Factoring the lengthy timespan the synergies will take to achieve, plus integration costs, and that headline figure might be worth only about 3.5 billion euros of value creation to each side, by my rough calculations.

Merging the two companies would create huge complexity and governance risks that the promised large slate of independent board members might still struggle to alleviate.

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% of FCA – investors in each firm would hold half of the new entity.It’s fortunate, then, that Fiat and Renault’s market capitalization weren’t all far apart, so a merger of equals is possible, at least on paper. The slight valuation disparity would be offset by a cash payment to Fiat shareholders.

A deal will more than likely 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 finalise.

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.

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