File picture: Regis Duvignau / Reuters.
File picture: Regis Duvignau / Reuters.

Fiat Chrysler to merge with Peugeot - here's what you need to know

By Giulio Piovaccari and Geert De Clercq Time of article published Nov 1, 2019

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PARIS - Fiat Chrysler and Peugeot owner PSA plan to join forces in a 50-50 share merger that will create the world's fourth-largest car company, seeking scale to cope with costly new technologies and slowing global demand.

The companies said on Thursday that they aimed to reach a binding deal in the coming weeks to create a $50 billion (R750bn) group with listings in Paris, Milan and New York. PSA's Carlos Tavares would be CEO and Fiat Chrysler's (FCA) John Elkann chairman.

It was less than five months ago that FCA abandoned merger talks with PSA's French rival Renault, and the move comes as carmakers grapple with a downturn in their markets as well as hefty investments in electric and self-driving vehicles.

FCA would get access to PSA's more modern vehicle platforms, helping it to meet tough new emissions rules, while Europe-focused PSA would benefit from FCA's profitable US business featuring brands such as Ram and Jeep.

However, the deal could still face close regulatory scrutiny, while governments in Rome, Paris and unions are all likely to be wary about potential job losses from a combined workforce of around 400 000.

Jefferies analyst Philippe Houchois said that, adjusting for the differences in market value and planned dividend payments, achieving the 50-50 split would effectively see PSA paying a 32% premium to take control of FCA.

Consolidation of platforms

Stricter anti-pollution rules from 2021 have triggered heavy investments into electric and hybrid vehicles as European lawmakers force a further reduction in vehicle C02 emissions.

A combination with PSA would give FCA access to the French group's CMP modular platform, which was launched in 2019 for Peugeot's e-208 compact city car, and donated for Opel to build the Corsa-e mini.

The CMP platform was jointly developed by Dongfeng and PSA.

PSA has moved Opel and Vauxhall from nine GM platforms to just two, helping Opel to return to profit after more than a decade of losses.

Savings for both

The tie-up would create a group with 8.7 million in annual vehicle sales, putting it fourth globally behind Volkswagen, Toyota and the Renault-Nissan alliance.

The companies aim to make 3.7 billion euros (R55.5bn) of savings without plant closures, and achieve around 80% within four years, at a one-off cost of 2.8 billion euros.

The combined group would include the Fiat, Jeep, Dodge, Ram, Chrysler, Alfa Romeo, Maserati, Peugeot, DS, Opel and Vauxhall brands, serving mass and premium passenger car markets as well as trucks and light commercial vehicles markets.

"There is still plenty of work to do before we reach a formal agreement, but what's clear is that the opportunity that represents for both companies is very compelling," said FCA Chief Executive Mike Manley.

Right man for the job

The merged group would be domiciled in the Netherlands, but have operating centres in France, Italy and the United States, and would have an 11-person board, with six members coming from PSA including Tavares, and five from FCA including Elkann.

Analysts, who questioned whether FCA and Renault had the management expertise to deliver a mega-merger, said Tavares was the right man for the job, having returned Opel to profit after buying it from General Motors in 2017.

PSA's Carlos Tavares is set to be CEO of the merged operation. Picture: Christian Hartmann / Reuters.

The former Renault executive has emerged as one of the leading figures in the motor industry following the death last year of FCA's former CEO Sergio Marchionne and the arrest of former Renault-Nissan boss Carlos Ghosn.

Marchionne long championed a merger for FCA, a cause that has been taken up by Elkann, a scion of the Agnelli family that owns a 29.2% stake in FCA and will be the largest shareholder in a combined PSA-FCA, with a 14.5% stake.

One industry source said Tavares had made savings at Opel by cutting engineering centres in Germany and consolidating activity in France. A similar move with FCA could fuel opposition in Italy.


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