TOKYO -- Nissan on Wednesday told Renault it wasn't opposed to its partner's potential $35 billion merger with Fiat Chrysler Automobiles as the two met to hash out the future of their alliance amid a deal that could upend the auto industry.

The leaders of Nissan Motor Co., France's Renault SA and junior partner Mitsubishi Motors Corp. gathered at Nissan's headquarters in Yokohama for a scheduled alliance meeting -- one overshadowed by FCA's proposal this week for a merger of equals with Renault.

The plan, which would create the world's third-largest automaker, raises difficult questions about how Nissan would fit into a radically changed alliance. Renault Chairman Jean-Dominique Senard arrived in Japan on Tuesday to discuss the proposed tie-up with Nissan, 43.4 percent owned by the French automaker.

"Overall, we don't see any particularly negative aspect" to the planned merger, which was for Renault and FCA to decide, Nissan CEO Hiroto Saikawa told reporters on Wednesday.

In a statement, the alliance members confirmed that they had "an open and transparent discussion" on the proposal. The deal looks designed to tackle the costs of far-reaching technological and regulatory changes, including the drive toward electric vehicles.

Nissan, which has rebuffed overtures by Renault for a merger of their own despite their 20-year alliance, was blindsided by the discussions, sources have told Reuters, stoking concerns that a deal with Fiat Chrysler could weaken Nissan's relations with Renault.

The tie-up also poses an additional challenge for Nissan CEO Hiroto Saikawa, already grappling with poor financial performance and an uneasy relationship with Renault after Nissan led the ousting last year of long-standing alliance chairman Carlos Ghosn.

There have long been tensions between Nissan and Renault over the imbalance of power in their alliance. Nissan, the bigger company, holds a 15 percent non-voting stake in the French automaker.

Ahead of Wednesday's meeting, Japanese media quoted Saikawa as telling reporters that he would look at the potential opportunities afforded by a Renault-FCA merger.

Credit ratings agency Moody's said it was vital for Nissan to stabilize its partnership with Renault to expand operational synergies and improve margins.

"It is unclear if the Nissan-Renault-Mitsubishi Motors alliance can advance their cooperation without resolving the cross-shareholding issue, which has been source of contention," Moody's said in the report, which followed a cut to Nissan's credit rating last week.

Status of the deal
Renault’s board is expected to give preliminary approval to Fiat’s proposal as soon as next week, people familiar with the matter told Bloomberg. While Fiat and Renault aren’t seeking a merger with Nissan for now, the companies plan to eventually invite Nissan and Mitsubishi Motors to join forces, they said.

“The benefits that would accrue from a combination of Groupe Renault and FCA, we believe, would also extend to the Alliance partners Mitsubishi and Nissan,” Fiat Chrysler told its dealers and suppliers Monday. “We look forward to engaging with them on even greater, mutually beneficial opportunities.”

At stake are the companies’ ability to compete as the industry faces multiple challenges. With sales falling in the world’s biggest car markets, manufacturers are being pushed by regulators to electrify and reduce fleet emissions, forcing them to combine efforts and investments. They also need to spend heavily on self-driving technology or risk getting left behind by new, deep-pocketed competitors such as Google's self-driving affiliate Waymo.

Hurt by slumping U.S. sales, aging vehicle models and an out-of-sync product cycle, Nissan issued an outlook for weak operating profit and cut its dividend for the first time in a decade.

Destabilized alliance
The alliance was destabilized six months ago with the arrest of Ghosn, its architect and chairman, for alleged financial crimes during his time as leader of the Japanese carmaker. Ghosn has denied all of the charges and is preparing for his trial, which will probably start next year.

Senard, who replaced Ghosn as chairman of Renault and the alliance, has sought to put the three automakers back on stable ground following his predecessor’s arrest. He worked earlier this year with Nissan to craft a new governance structure to oversee the partnership, giving up key concessions over board seats to assuage concerns by the Yokohama-based company.

Although Senard had been prodding Saikawa to consider further consolidation under a holding company structure, that’s now on hold. Eventually, they plan to invite the Japanese automaker to deepen ties, people with knowledge of the matter said.

Saikawa, who had rebuffed any talk of merging, now appears to be shifting his message. Talks between the European car companies will bring more opportunities and be positive for the future, Nissan’s CEO said. “It’s better if the alliance’s reach expands,” he said.

Saikawa’s comments underscore what appears to be a split in Nissan’s leadership over the right course of action. Earlier this week, the automaker signaled that it doesn’t view an extensive deal between them as a positive development, according to people with knowledge of the matter. Wednesday’s meeting may be critical for breaking that impasse.

“The deal shows what could happen between Renault and Nissan down the road,” said Tatsuo Yoshida, an analyst at Sawakami Asset Management Inc. “Renault’s bargaining power will increase if the merger talks succeed.”
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