Italian-American carmaker Fiat Chrysler withdrew Thursday its proposal to merge with Renault, blaming "political conditions" in France.
Fiat Chrysler (FCA) had last week proposed a "merger of equals" with the French group that would create a global auto giant spanning the United States, Europe and Japan.
The plan was welcomed by financial markets and given a conditional green light by the French government, which nonetheless warned against "any haste" regarding the proposed 50/50 merger.
But FCA said Thursday that while it "remains firmly convinced" of the deal's advantages, "political conditions do not currently exist in France to carry out such an arrangement".
Renault announced earlier that its board of directors had not reached a decision following a crucial meeting held at the request of the French state, the biggest shareholder in Renault with a 15 percent stake.
French Finance Minister Bruno Le Maire had called a merger that would have brought together the flagship brands as well as Alfa Romeo, Jeep, Maserati, Dacia and Lada, "a real opportunity for the French auto industry".
It would have created a group worth more than 30 billion euros ($34 billion), producing 8.7 million vehicles per year.
Le Maire had set conditions however, including that no plants be closed as part of the tie-up and that a Renault-Nissan alliance be preserved.
A source close to Renault said Le Maire had asked for a board meeting next Tuesday after he returns from a trip to Japan where he was to discuss the proposal with his Japanese counterpart.
On Wednesday, all Renault directors favoured the merger, apart from an employee's representative affiliated with the powerful CGT union and two from Nissan - a long-time Renault partner - who abstained, the source added.
Renault to decide on merger talks with Fiat Chrysler
The board of French car giant Renault is expected to decide Tuesday to begin merger talks with Fiat Chrysler which could create a new global giant spanning the United States, Europe and Japan.
US-Italian group Fiat Chrysler proposed a "merger of equals" with Renault last week, which has been welcomed by financial markets and has been given a conditional green light by the French government.
A merger would be "a real opportunity for the French auto industry," Finance Minister Bruno Le Maire told AFP on Friday of a tie-up which would bring together the flagship brands as well as Alfa Romeo, Jeep, Maserati, Dacia and Lada.
After preliminary talks over the last week, Renault directors are set to meet on Tuesday and decide whether to enter into formal discussions, which most observers expect it to do.
If combined, the two firms would produce 8.7 million vehicles a year, creating an industry powerhouse with an expected market value of some 36 billion euros ($40 billion).
But Renault already has an alliance with Japan's Nissan and Mitsubishi, and the combined mega-group would be by far the world's biggest, selling some 15 million vehicles, surpassing Volkswagen and Toyota, which sell around 10.6 million each.
Nissan, a long-time Renault partner, fears being sidelined by the deal and its chief executive, Hiroto Saikawa, warned Monday that a merger "would significantly alter the structure of our partner."
Any new combination would require a "fundamental review" of their relationship, said the boss of Nissan, whose 15 percent stake in Renault would be diluted to 7.5 percent under the proposed deal.
Behind the scenes at the Yokohama-based firm, some executives believe the merger talks could further strain relations with Renault, which have been hit by the arrest in Japan of former CEO Carlos Ghosn, the architect of their alliance.
"It's an ill thought-out and badly conceived plan," one source close to Nissan told AFP last week on condition of anonymity.
Renault board chairman Jean-Dominique Senard travelled to Tokyo last week to attempt to smooth over ties in what has been a sometimes tricky marriage between the two partners over the last two decades.