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The company said Wednesday that it "has become clear that the political conditions in France do not exist for such a combination to unfold successfully".
Earlier in the day, Renault said the French government had asked its board of directors to postpone the vote on the merger. France, which owns 15% of Renault's capital, had previously indicated that it would support a merger if companies protected French car jobs and factories.
Renault could not be reached for comment Wednesday night.
This deal would have created the third automaker behind Volkswagen and Toyota. General Motors would have fallen to fourth place in the world rankings. The proposal is the latest example of established automakers looking for partnerships to share the costs of developing new technologies, including electric vehicles and autonomous driving systems.
Fiat Chrysler (FCAU) owns brands such as Jeep, Dodge, Alfa Romeo and Maserati. North America is one of its main markets, where Renault is not very present.
Fiat Chrysler announced in its first merger proposal last month that a merger would save annual savings of more than 5 billion euros ($ 5.6 billion). The company said that no factory would be closed as a result of a merger.
Renault is already part of a major global alliance with Japanese automakers Nissan and Mitsubishi. Renault and Nissan both have significant holdings. But this alliance was put to the test when Renault President and CEO Carlos Ghosn was arrested in Japan last year, accused of irregularities in his Nissan pay offer.
Nissan declined to comment Wednesday night on Fiat Chrysler's withdrawal.
Nissan, Renault and Mitsubishi Motors together employ more than 470,000 people in nearly 200 countries. They sold more than 10.6 million cars worldwide in 2018. The three alliance partners renewed their mutual commitment at a meeting in Amsterdam last December, but tensions between partners persist.
The French government is one of Renault's largest individual shareholders.
Fiat Chrysler was created as a result of the merger of two struggling automakers. Fiat bought a majority stake Chrysler following the rescue of the company by the US government in 2009. They were officially merged in 2014.
But Fiat Chrysler is far the fourth largest sales in the United States and ranked 8th in the world. The company has also trained its competitors in the adoption of electric vehicle technology and self-driving, which is considered by many as the inevitable future of the industry.
Sergio Marchionne, his former CEO who died a year ago, spoke openly about the need to merge Fiat Chrysler with a larger manufacturer to give it the scale and resources needed to compete. He had even asked for a merger with General Motors, but he had been put off. He had been much more direct than other leaders in the auto industry about the threat posed to industry by newcomers such as Google (GOOG) asked the automakers of the old line.
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