PSA Groupe and Fiat-Chrysler Automobiles have agreed in principle to a merger that would create a new automotive super-group.
The deal, if it is finally signed off (the two companies will only say for now that talks are at an advanced, but ongoing, stage) will combine Fiat, Alfa Romeo, Maserati, Jeep, Dodge, Ram Trucks, Peugeot, Citroen, Opel, and DS into one automotive super-group that will have a market value of more the USD$50 billion, and potentially rival Volkswagen and Toyota in terms of vehicles produced per year - combined, the two companies built 8.7 million cars last year.
€170 billion in revenues
That would make it, currently, the fourth-largest automotive group worldwide, with combined revenues of more than €170 billion and profits (as things stand right now) of more than €11 billion. It's already being estimated that the merger could save the two firms a combined €3.7 billion in annual costs, mostly through the pooling of research and development programmes, and platform sharing. The new company, if it is finally agreed, expects to make around 80 per cent of those savings within the first four years.
The new group, which is yet to be given a name, will be owned 50/50 by the two existing companies. It's expected that PSA Groupe CEO Carlos Tavares will be the chief executive of the combined group, with Fiat's John Elkann (a scion of the Agnelli family) as chairperson.
Carlos Tavares said: "This convergence brings significant value to all the stakeholders and opens a bright future for the combined entity. I'm pleased with the work already done with Mike and will be very happy to work with him to build a great company together."
The Mike he's talking about is Mike Manley, head of Fiat-Chrysler's car-making operations, who said: "I'm delighted by the opportunity to work with Carlos and his team on this potentially industry-changing combination. We have a long history of successful cooperation with Groupe PSA and I am convinced that together with our great people we can create a world class global mobility company."
No factory closures promised
So far, both companies have said that they have no plans to close any production facilities, nor to make any layoffs. Major investors in the combined company will include Exor, the Angelli family's holding company, the Peugeot family, the French government, and Chinese car maker Dongfeng. Part of the deal will involve divvying up shares in some of the other companies owned by the two groups, such as PSA's holding in automotive parts supplier Fareucia, and Fiat's shareholding in robotics maker Comau.
How will the merger affect the cars you buy? Well, we should start to see shared platform models appearing pretty quickly, especially from Fiat-Chrysler. Cars such as the Panda, 500, Jeep Renegade, Grand Cherokee, and Cherokee are all approaching the end of their current platform lives (or in some cases have long since outlived them). PSA has already shown, with the new Opel Corsa, how quickly it can turn an almost-completed design around and make it fit one of its EMP platforms, so expect to see new Fiats and Jeeps pretty rapidly switched to PSA chassis and engines.
Balancing the brands
The question will be how to balance the brands. Peuegot, Citroen, and Opel already occupy the mid-market family car sector, so Fiat will most likely be skewed smaller and cheaper, with a new 500, new Panda, and new 500X, but that might be the limit of the brand's ambition. Jeep can play in a more expensive pool, but it remains to be seen if PSA's platforms can be made large and rugged enough to suit a Grand Cherokee or even the proposed Grand Wagoneer Range Rover rival. Getting Alfa Romeo, Maserati, and DS to gel together could be the toughest task of all. None of the three currently enjoys especially strong sales, so there could be some shedding of underperforming brands in the future.
What is certain is that the brands will be able to leverage each others' strengths in various global markets. PSA Group is strong in China, where traditionally Fiat-Chrysler has under-performed, while Jeep, Dodge, and Ram are big in the US, a market that PSA most definitely wants to break back into. It could be interesting to see what happens with the new group's various factories, especially PSA's Vauxhall facilities in the UK, post-Brexit.
Most analysts seem to think that the move is a smart one, given that all automotive companies are currently facing major investment challenges as we move into the electric and automated future. David Leggett, Automotive Editor at GlobalData, a leading data and analytics company, told CompleteCar that: "This news is not unexpected, given that both companies have been actively exploring tie-ups with others to yield cost savings and other synergistic benefits. FCA had proposed a merger with PSA rival Renault earlier this year, but the discussions hit political obstacles and FCA subsequently withdrew its proposal.
"Peugeot could potentially leverage the network of Fiat-Chrysler to create a presence in the US, and Fiat Chrysler would achieve greater exposure and scale in Europe, benefitting from PSA's technology to tackle CO2. Both can share the burden of investments in future technologies and jointly design electric, autonomous and connected vehicles. One big question is the manufacturing footprint, especially in Europe, where capacity utilisation levels and plant-product mix can be reviewed further down the line. If this major industrial consolidation succeeds, it will raise questions concerning other automotive companies - Ford and General Motors, for example - who are faced with the same challenges as PSA and FCA and for which new strategic steps to address future scale and structure will become increasingly pressing."
Others are less sure. One comment on Twitter the morning after the merger talks were announced read: "You could end up with a car with the reliability from an Alfa Romeo, the electrics from a Citroen, and the anonymity of a Vauxhall."