Fiat Chrysler pulled out of an offer to merge with French automaker Renault late Wednesday, saying in a statement that France's political climate would prevent the tie-up from being a success.
The surprise move came on a tumultuous day that saw a tentative agreement on merger terms between FCA and the French Government fall apart. The Groupe Renault board met for six hours outside of Paris to consider the merger, only to postpone a decision at the request of the government, which owns 15% of the company.
For now, it appears the merger has been scuttled, with FCA thanking Renault and its alliance partners Nissan and Mitsubishi for their work on the proposal.
"It has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully," the Fiat Chrysler statement said. "FCA will continue to deliver on its commitments through the implementation of its independent strategy."
The combined company would have produced some 8.7 million vehicles a year, more than General Motors and trailing only Volkswagen and Toyota. Fiat Chrysler had proposed merging with Renault to create the world's third-biggest automaker, worth almost $40 billion.
But it could have been gummed up by job and other assurances sought by the French government.
Earlier in the day, a person briefed on the matter said Fiat Chrysler and the French government had reached a tentative deal on terms for the potential merger, a good sign for the plan, but no guarantee it would be approved. The person didn't want to be identified because Renault's board was still meeting to discuss the proposal.
The merger would have saved billions in purchasing costs and helped each company share costs of developing autonomous and electric vehicles. It also would have reshaped the global auto industry, especially if the new company maintained ties with Japan's Nissan.
The French government wanted job and investment assurances, a seat on the merged entity's board, and for the operational headquarters of the merged company to be in France.
Earlier Wednesday, France's finance minister said the car companies shouldn't rush into a merger.
"Let's take the time to do things well," Bruno Le Maire said on BFM television. "We want this merger, but we don't want it under just any conditions."
The negotiations come as the French government is struggling to contain fallout from new job cuts announced by General Electric in France.
Renault's powerful CGT union is against a Fiat Chrysler merger, fearing the loss of jobs and arguing the proposal undervalues Renault and bails out Fiat.
A merger could also threaten Renault's troubled alliance with Nissan and Mitsubishi. Nissan had no comment Wednesday on the collapsed deal.