Volvo pulls out of Renault merger: Swedish directors resign after board meeting - Question mark over continuing collaboration

THE FIRST concerted attempt to restructure the European motor industry collapsed last night after Volvo of Sweden pulled out of its pounds 27bn merger with the French car maker Renault.

The failure of the merger, which would have created the world's sixth-largest automotive company, is a blow to Renault but it may have more serious repercussions for the loss-making Swedish car and truck maker.

Pehr Gyllenhammar, the Volvo chairman, and three other directors immediately announced their resignations after a Volvo board meeting in Stockholm decided not to seek approval for the merger at an extraordinary shareholders' meeting next week.

The demise of the merger also places a question mark over the future of Louis Schweitzer, who as Renault chairman was the other architect of the deal, and the prospects of privatising the French group.

Last night the French Industry Minister, Gerard Longuet, said on French radio that Sweden was a completely unpredictable partner, and called the setback a missed opportunity for European industry.

'When you sign a contract, you commit your company,' he added. 'If a state company had been as unpredictable, this would have been put down to politics. This is a private sector company that has not been able to put its house in order . . . It's quite amazing.'

Last night industry observers were also questioning whether the existing industrial collaboration between the two manufacturers, based on cross-shareholdings, would survive in the long term.

The deal had been facing an uphill struggle since its initial announcement three months ago. But in the past few weeks, the weight of opposition from Volvo's big institutional shareholders and some of the company's own top management began to make failure seem even more likely.

Renault would have emerged with a controlling 65 per cent stake in the combined company and never made any attempt to deny that it would be in the driving seat - something that incensed Volvo shareholders and led to a campaign to have the deal thrown out.

A source close to the two companies attributed the failure of the merger to a combination of 'Swedish stupidity and French arrogance'.

Soren Gyll, managing director of Volvo and one of those sceptical about the merits of a full merger, said the two companies would continue to co-operate. 'We have set the merger aside, but we will work on with the alliance,' he said as he left the board meeting.

But in Paris Renault said the 'dynamic of the alliance has been interrupted', though it stressed that the partnership remained in effect.

The merger would have been the first of a possible series of jumbo marriages among European car makers, creating a grouping with 200,000 employees, and sales of nearly 2.5 million cars and light commercial vehicles, making it Europe's fourth-largest car maker.

The first fruits of the merger were due to appear next spring when a replacement for the Renault 21 goes on sale sporting a Volvo engine.

This will still happen but plans to replace the Renault Safrane and Volvo 850 executive cars by the end of the decade with a model featuring a common platform and engine look much less certain.

Analysts were forecasting last night that Volvo, which lost Skr3.3bn ( pounds 264m), would need to seek a fresh capital injection and possibly a fresh partner to help develop new models.

But Renault's own position has also become more vulnerable in the past 12 months, its profits melting away in the face of the recession in the European car market. Profits for the first six months of this year were 87 per cent down on the same period in 1992.

At the time of the merger announcement, Mr Schweitzer said it was necessary if the two companies were to move faster and counter the threat posed by Japanese transplant car factories in Europe. That strategy is now in tatters.

(Photograph omitted)