Fiat Chrysler, PSA merge to form the fourth-largest automaker in the world

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In early June, automakers Fiat Chrysler and Renault looked as if they were on the verge of a 50-50 merger that would have created a $35 billion global auto giant, the No. 3 automaker in the world.

But almost as soon as the deal seemed done, it collapsed.

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Hemmed in by labor unrest, characterized most strikingly by the yellow-vest protests, Paris could not risk the loss of influence at the merged business. Its 15% shareholding in Renault would have been cut in half and with it any hope of stemming French jobs losses at a merged multinational operation.

A ‘European thing’

As Business Insider reported at the time, the proposed merger was largely a “European thing.”

FCA’s U.S. operations were and remain a cash cow, prospering on SUV and pickup sales; however, the Fiat brand has been a notable failure in the U.S. market.

Renault hasn’t been a factor in the U.S. since the early 1990s, and neither company is strong in China, the world’s largest car market.

So FCA went looking for a new partner and, ironically, seems to have found it in another French group: PSA, the owner of Peugeot.

Merger money

Fiat Chrysler and Peugeot agreed this week to a 50-50 merger to create the world’s fourth-biggest carmaker with revenues of €170 billion and a combined workforce of about 400,000. The intention  to invest in new technologies, such as electric vehicles (EVs), at a time of profound and challenging change in the automotive industry.

The Financial Times reports the merger of Peugeot and Fiat will form a group with recurring operating profits of more than €11 billion and sales ahead of General Motors and Hyundai-Kia.

The Financial Times went on to say, based on the firms’ current market capitalizations, the new entity would have an equity value of about €41.1 billion.

Despite targeting annual cost savings of around €3.7 billion, PSA and FCA said no plants would close as a result of the merger.

But no plant closures doesn’t mean no job losses.

The article quotes Ferdinand Dudenhöffer, of the CAR-Center Automotive Research at Universität Duisburg-Essen, who said PSA’s Opel unit would be the “loser” in the merger and predicted at least 10,000 engineering job losses overall. “Opel’s role in the new group will become weaker. [It will have to] fight alongside mass-market brands Fiat, Citroën and Peugeot for the same customers,” he is quoted as saying.

Challenges ahead

FCA and PSA are not alone in facing profound challenges over the next few years created by looming legislation led by Europe over emissions targets.

The pressures on automakers are being exacerbated by a slowdown in the global automotive market, just as cash flow is being squeezed by the massive investment required for a switch to electric vehicles.

In an upcoming article, we will explore the dichotomy automakers in Europe are facing. Driven by legislation to reduce average fleet emissions, automakers are bringing a wave of new EV models on to the market, but the general public remains wary of EVs and is not making the switch (except in a few incentive-driven countries).

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The FCA-PSA merger may give the combined group the financial clout and resources to make the aforementioned transition.

But until the paying public can be persuaded to change, government legislation might create the greatest challenge to carmakers in the new decade.

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