Autos

Pluses and Minuses Of The Fiat-Chrysler/PSA Merger

It looks like the merger of Fiat-Chrysler and Peugeot’s French parent company PSA Group is going to happen. Both company boards approved a preliminary merger plan. So this has evolved beyond speculation. This would create a vehicle manufacturer ranking as one of the largest in the world. 

Here’s What We Know:

The merged companies would create the fourth largest vehicle manufacturer in the world. This, according to Automotive News.

Shareholders in both companies would own 50% of the total entity. Investors in Fiat will receive a $6.1 billion dividend. PSA will sell parts manufacturer Faurecia and distribute the money it receives from the sale to shareholders valued at $3.3 billion. 

The new board will comprise 11 members. Six will be from PSA’s board which will include PSA CEO, Carlos Tavares. He will become head of the giant company. John Elkann, Fiat Chairman, will retain that title in the enlarged company. The new corporate headquarters will be housed in the Netherlands.

FCA’s directors approved the merger agreement with PSA to begin negotiations of a binding memorandum of understanding for several weeks while both companies finalize discovery. Both companies have estimated the efficiency of scale savings around $4.4 billion. They also say there should be no plant closings from the merger.

PSA Is Big

PSA Assembly Plant | Getty
PSA employees work on the assembly line at the French automaker PSA Peugeot Citroen factory, in Mulhouse. | SEBASTIEN BOZON/AFP/Getty Images

We sometimes forget that PSA is the No. 2 auto manufacturer in Europe. Though none of its products land on our shores, it manufactures Peugeot, Citroen, Vauxhall, and Opel brand vehicles. The combined value of the merger would create a company with a market value of almost $50 billion. That’s comparable to Honda Motor Company. 

In June FCA was negotiating with French manufacturer Renault SA for a possible merger when discussions ended. Both PSA and FCA are facing an uphill challenge as they are looked upon as deficient in electrification development, shy of strong investments, and a weak presence in China. 

Advantages To The Merger

One advantage of the merger would be a stronger opportunity to grow its commercial vehicle offerings in Europe. The Fiat brand is also seen as lagging behind in SUV offerings in Europe. There are a number of Jeep and Ram platforms for Peugeot-branded SUVs.

With Peugeot’s stated goal of 40 electric models by 2025, it is well into an electrification program it was late getting into. This would help FCA get into a segment it is sorely lagging behind in. Neither company has made much headway in autonomous vehicle development, but the results of this technology are way off into the future giving both an opportunity to share in development rather than separately.

With French vehicle manufacturers, there is always the influence of the French government because it is a large shareholder in both PSA and rival Renault SA. The French finance ministry supports the merger in principle. It has been on the record as seeing a French battery maker as an important part of any vehicle manufacturing in France.

Fiat-Chrysler and PSA Overlap

The financial markets see a merger as ideal because of similar products with an opportunity for economies of scale. But those similar products revolve around sedans, which are not selling well in the US. The overlap means there will be cuts, the most likely being with Opel. That’s because most of its plants are in Germany. There will be political pressure not to cut plants in Italy and France. 

PSA’s Tavares hs stated PSA’s goal of returning to the US by 2025. It has not sold cars here since the 1980s. With 2,640 FCA dealers in the US, PSA has almost instant penetration. It could even remain separate from FCA by taking over Fiat and Alfa Romeo dealerships which are underutilized due to poor sales of those brands.

It will be interesting to see how this merger will manifest itself and what products will carry over and which ones will be cut. We have our predictions. What do you think?