FCA and PSA agree to merger deal

Fiat Chrysler Automobiles and PSA Group have announced that a signed agreement is now in place for both car-making giants to join forces as part of a 50/50 merger.

Under the terms, which will create the world's fourth biggest car manufacturing group, the combined company will be led by current PSA CEO, Carlos Tavares. FCA's current chairman John Elkann, meanwhile, will chair the new group.

The deal will see combined volume for both FCA and PSA rocket to 8.7 million cars a year, which is less than the Volkswagen Group, Toyota and the Renault-Nissan-Mitsubishi alliance, although it's expected to slip into third place in terms of annual revenue with €170 billion ($A276b).

As part of today's announcement, FCA's shareholders will receive a dividend of €5.5 billion ($A8.9b) while PSA shareholders will get €3 billion ($A4.9b).

The chief motivation behind PSA and FCA bedding each other is an annual cost saving of €3.7 billion ($A6b), thanks to platform and technology sharing.

Greater purchasing power, alone, is said to represent a 40 per cent saving, while combining both groups' IT and admin departments will slash another 20 per cent in costs.

An unexpected fallout from the merger is new CEO Tavares' declaration that he would put on hold his plans to launch PSA brands in North America, given FCA's strong presence there.

“We see strength of FCA in North America is outstanding, and we have 12 months ahead [while the merger process concludes] to think about it.”

Originally, it was thought the Peugeot brand could re-enter the US and use Chrysler's retail channels to sell cars, but it seems those plans are on hold.

What could change things is if the US introduced mandatory caps on CO2 emissions, in which case Tavares said he would fast-forward the US introduction of lower-emission PSA vehicles.

“All the electrification know-how we have developed for the European market would be a very significant asset to bring to the US market for the appropriate level of improvement,” said PSA's current CEO.

According to the new boss, the first models to be produced from the close working relationship between PSA and FCA will arrive in no more than a couple of years.

Speaking following the announcement, Tavares said: “This is going to be exciting. This is going to be a once in a lifetime opportunity and I’m really looking forward to support the creation of this merged company.”