FCA, PSA agree on £39bn merger contract
Joint operation will form the fourth largest car firm in the world with an anticipated 14m car annual output
Six weeks after talks officially began, Fiat Chrysler Automobiles and Groupe PSA have agreed on a £39 billion contract to merge operations, creating the world’s fourth biggest car company with an anticipated combined revenue of £144bn. The yet-to-be-named joint operation, which at current performance accounts for the production of 8.7m cars per year, is to be headed by CEO Carlos Tavares, who will be tasked with cutting total annual costs by more than £3bn while maintaining the current workforce. Rather him than us.
The final deal is expected to be completed within 12 to 15 months, during which time decisions for how FCA and PSA will share technologies and production facilities will be made to improve economies of scale and ready themselves for a big push in output. The merging of Fiat and Peugeot’s resources is said to have potential for an annual production of 14m cars, which would beat the Volkswagen Group’s 11m output in 2018. Although admittedly by the time that number is reached the global market is likely to have grown significantly.
But that’s a conversation for the future. At this stage, the focus is very much on the money, as evidenced by the latest move of one of PSA’s biggest shareholders, Dongfeng Motor Group, which is selling 30.7 million shares to PSA. The Chinese company will retain a 4.5 per cent share in the new merger – something Reuters reckons will help “the deal gain regulatory approval in the United States”. Only last month, America’s General Motors claimed FCA was bribing unions to sweeten the deal, although so far no evidence has come to light.
Over the coming weeks, Fiat and Peugeot’s ongoing talks should yield more business news, but we suspect it’ll be several months at least before the outcome for each brand under the newly created umbrella becomes clear.
Previous story: 31.10.2019
You don’t have to be an economics expert to understand the merits of mergers in the car industry. The Volkswagen Group and Renault-Nissan are the first and third largest car companies in the world thanks to their multi-brand approach - and now it looks like another arranged marriage is on the cards. Together, Fiat Chrysler Automobiles and Groupe PSA anticipate a combined revenue of €170bn and a sales volume of some 8.7m cars. That would be sufficient to make it the fourth largest automotive firm in the world.
If all goes according to plan, it will be Carlos Tavares at the helm, who’s overseen the PSA Group’s growth into an international force and headed the purchase of Vauxhall and Opel from GM for £1.9 billion in 2017. Proven at PSA, it’s possible that Tavares is the man to fill the enormous void left by the late Sergio Marchionne at FCA. Expect the 61-year-old to focus on bringing some consistency to the sales performance of Fiat’s diverse portfolio using shared research and development that have been rolled out at PSA in recent years.
Things are set to get going quickly, too, with 80 per cent of the merger expected to be complete in just four years’ time, meaning the brands of this new Fiat-Peugeot company could start to get shared platforms to underpin their products of the mainstream, premium, SUV and commercial segments in the middle of the new decade. The sharing of powertrains and production lines should happen even sooner. That might help the new FCA/PSA company make up ground to the seemingly uncatchable VW Group, which remains a global automotive juggernaut even in the wake of Dieselgate.
Typically such a merger would herald the closing of extraneous factories and a slimming of some workforce, but with notoriously volatile French (and, on the other side, American) employees to placate, both PSA and FCA have denied such losses would be necessary. The official word is that none of the changes will be “based on any plant closures” - which, for now, ought to smooth the ruffled brow of 400,000 workers worldwide. Indeed, Tavares said that “this convergence brings significant value to all the stakeholders and opens a bright future for the combined entity”. Hopefully that includes the more extensive use of Maserati’s racey Trofeo V8 and Alfa Romeo’s terrific Quadrifoglio V6…
FCA has never managed this. we don't get Fiat/Chrysler/Alfa/Lancia in the same way. Its internal platform sharing is more akin to the MX-5/124 than the adroitness with which VW does it.
When I was at Motorola I mapped the VW platform sharing as an example of how it should be done, and how Nokia had such a cost advantage over us. I was amused some years later to discover Nokia had also used VW as an example.
There are only benefits in an FCA/PSA deal if the two companies can get on top of their brands (and please bring Lancia back with a new Fulvia) and make the sharing work.
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