After a board meeting on Thursday, Fiat Chrysler Automobiles (FCA) withdrew its proposal to merge with Renault after the French government called for the postponement of the deal, reports said. French state, the biggest shareholder in Renault, reportedly hesitated to go ahead with the 50-50 merger deal because it lacked the support from Nissan Motor, another major shareholder on Renualt's board.
"It has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully," Fiat Chrysler said in a statement.
However, the Italian-American auto major said that it "remains firmly convinced of the compelling, transformational rationale of a proposal that has been widely appreciated" for its "structure and terms of which were carefully balanced to deliver substantial benefits to all parties".
The French government holds 15 per cent stake in Renault as the biggest shareholder in the company. Japan-based Nissan owns another 15 per cent in the French automaker, whereas Renault owns 43.4 per cent stake in Nissan.
According to a report by The Guardian, French finance minister Bruno Le Maire said that explicit support of Nissan could not be obtained on all the government's conditions for a merger between Fiat Chrysler and Renault.
On Wednesday, all Renault directors favoured the merger, apart from an employees' representative affiliated with the powerful CGT union and two from Nissan who abstained, reports suggest. The two directors appointed by Nissan however asked "to write in the minutes that they would say yes with a little more time".
Fiat Chrysler had last week proposed a "merger of equals" with the Renault group that would create a global auto giant spanning the United States, Europe and Japan. The merger deal was expected to create the third largest automobile company in the world, after Volkswagen and Toyota, with a total worth of 34 billion. The merger would have brought together the flagship brands as well as Alfa Romeo, Jeep, Maserati, Dacia and Lada, resulting in production capacity of 8.7 million vehicles per year.
The French government had however stipulated that no plants be closed under the merger and no French jobs should be threatened. The French state had also called for preserving the Renault-Nissan alliance.
Companies have been looking at consolidation in the face of changing scenarios in automobile sector favouring electric vehicles, stricter emission norms and development of autonomous vehicles. The Fiat Chrysler-Renualt merger would have allowed the companies to share costs on development of electric and self-driving cars.
Also, the merger proposal had come when the Renault-Nissan partnership, underpinned by crossed shareholdings, has been strained by the scandal surrounding former chairman Carlos Ghosn, who was ousted in the wake of a Nissan internal investigation.