PSA and FCA merge overnight

Updated 11/1/2019: Official comment from FCA (Fiat Chrysler Automobiles) and PSA (Peugeot Société Anonyme) has been made public as the plan to merge the companies is now official.

A press statement was issued outlining that both boards are now moving towards a "binding Memorandum of Understanding in the coming weeks" that would create a 50/50 merger of the companies.

Once the deal is signed, sealed and delivered, the car-maker will be the fourth-largest OEM on the planet, with annual sales of just under nine million vehicles.

PSA CEO 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 [Manley] and will be very happy to work with him to build a great company together.”

FCA CEO Mike Manley 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."

What will this merger mean for the various brands, from Peugeot to Chrysler and Jeep to Opel? At this stage not much but in future platform sharing will help the companies cut costs and develop more advanced and potentially competitive vehicles.

The desperation of Fiat Chrysler Automobiles’ need to merge with another car-maker has become clear, with confirmation that the Italo-American group has merged with France’s PSA.

In the same year as its merger proposal with Renault failed, FCA has again trudged its way through Charles de Gaulle’s Terminal 2 in Paris to sell almost the same deal, only this time to the PSA Group.

While details of the merger are still sketchy, the 11-seat board will contain five FCA personnel and six from PSA, which seems fruitful for an FCA that’s marrying on the rebound.

The Wall Street Journal last night reported that the confirmation of the merger was dependent only on approval from the individual boards.

FCA Chairman and the scion of Fiat’s controlling Agnelli family, John Elkann, will be proposed as the chairman of the new company, while PSA’s CEO, Carlos Tavares, should retain the position in the new entity.

The combined annual earnings of the new group would be about $US50 billion and the Peugeot board was the first to agree to the deal yesterday morning. The Agnelli family’s holding company, Exor, agreed later yesterday, leaving only the formal FCA board approval.

The merger creates a supergroup which joins PSA’s Peugeot, Citroen, DS, Opel and Vauxhall brands (the latter supplying Astra and Insignia/Commodore vehicles to Holden) with FCA’s Jeep, Fiat, Alfa Romeo, Lancia, Maserati, Dodge, RAM and Chrysler brands.

It takes two mid-ranking groups and turns them into an entity that will leapfrog Ford and General Motors, ranking fourth in the world in sales volumes, behind Toyota, the Volkswagen Group and Renault-Nissan-Mitsubishi.

FCA has a strong footprint in most major markets – a major failing of the current PSA setup – with Jeep, RAM, Dodge and Chrysler in North America.

It also gives the PSA side of things a legitimate entry to the premium market that has long eluded it (even with the new-ish DS brand) thanks to Alfa Romeo and Maserati, plus it would deliver the declining volumes of Fiat and the never-say-die attitude of Lancia.

While the French government owned 15 per cent of Renault when its merger was rejected, it also owns 13.68 per cent of PSA, whose roots date back to its early days making coffee and pepper grinders in pre-Napoleonic France.

The Peugeot family retains 13.68 per cent of PSA, as does China’s Dongfeng Motor Group, though it is reportedly keen to cash out of the group.

The glaring weakness for the merged group is that neither company is strong in the world’s biggest market, despite Dongfeng’s ownership share of PSA.

The combined forces of both groups has less than a single percent of the Chinese car market, where Volkswagen sails along as the undisputed leader.

"I don't see a point in the consolidation in terms of their China business," said the secretary general of the China Passenger Car Association, Cui Dongshu.

"There won’t be much synergy in sourcing and product line-ups. Survival is the key issue here."

The PSA-Dongfeng joint venture saw its sales fall 38 per cent there in August, to just 26,500 sales, and its sales were down more than 45 per cent in the first eight months of the year.

It was worse for its other joint venture, the Changan PSA operation, which saw its sales collapse 64 per cent for the first six months of the year to just 3157 vehicles.

Meanwhile, things weren’t much better for the Italian-American operation, with FCA’s Guangzhou Automobile Group joint venture reporting a 46 per cent fall in sales in the first half of the year to only 52,372 sales.

FCA and PSA each put out one-paragraph statements earlier last night confirming the talks, with FCA’s reading: “Following recent reports on a possible business combination between Groupe PSA and FCA Group, Fiat Chrysler Automobiles confirms there are ongoing discussions aimed at creating one of the world‘s leading mobility Groups. FCA has nothing further to add at this time.”

PSA’s response was equally bland, saying: “Following recent reports on a possible business combination between Groupe PSA and FCA Group, Groupe PSA confirms there are ongoing discussions aimed at creating one of the world’s leading automotive groups.”

It was almost like they’d already merged...

In the wake of the news, Volkswagen was been quick to insist it was not looking to stretch its technical tie-up with Ford into a full-blown takeover.

At its earnings call yesterday, Volkswagen Group’s Chief Financial Officer Frank Witter insisted he did not see the alliance morphing into a merger just because FCA was seeking partners.

The FCA-PSA talks began almost s the Renault talks failed, with PSA boss Carlos Tavares yet again looking to capitalize where his old employer, Renault, stumbled.

FCA has been scrambling for a merger partner for more than a year now (though its late CEO Sergio Marchionne has long made it clear the group was open to offers).

Its Renault merger was kyboshed by the French giant’s turmoil with its Japanese alliance partners, along with the French government.

Tavares has already been at the forefront of turning PSA around after it lost €5 billion in a year in 2012. He has already toyed with the idea of buying Jaguar Land Rover and lead the deal that took Opel-Vauxhall off GM’s hands in 2017.

PSA took Opel-Vauxhall for $US2.3 billion to make it Europe’s second biggest car-maker, then turned it into a profit-making concern within a year.

"In 2018, FCA sold 4.8 million vehicles while PSA sold 3.9 million, suggesting a combined company could be selling in the region of 8.5 million units a year,” said David Leggett, the Automotive Editor of data and analytics firm GlobalData.

"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.”