What the PSA – FCA merger means to them and us

Somewhere on the well-flown, private-jet path between Torino and Paris, the deal was done. Subject to the approval of the FCA Group and PSA Groupe supervisory boards, the two carmakers will now merge.

Crazy, right? Just five months after it was trying to merge with Renault and Nissan, Fiat Chrysler finds itself married off to another French carmaker.

This time, it’s different. More personal, somehow. See, for all of its international flavour, FCA is still under the effective control of the Agnelli family’s holding company, Exor.

Over at PSA, the parent company of Peugeot, Citroen and DS, the Peugeot family dynasty still owns 13.68 per cent of the stock.

The two families know each other well, with the Agnellis famously being based out of Paris in the 1950s and 1960s.

But there are downsides to the almost-confirmed merger, as there are winners.

Winner: The Agnelli family
FCA chairman John Elkann seems to have played a blinder here, and for reasons that don’t seem obvious.

From the ashes of a Renault merger negotiation came the PSA merger. Or did they? Was the PSA merger always in negotiation?

The merged company’s players market valuations would split at 55 per cent to PSA and 45 per cent FCA, yet they both have five board members.

To simplify things, it’s been reset at 50:50 and FCA scores €5.5 billion to distribute to its shareholders. The biggest of which is Elkann’s Exor, which will retain 14 per cent of the new company.

Effectively, FCA contributes that same €5.5 billion LESS to the 50:50 merger than PSA does.

And if those big jumps for FCA weren’t enough for Exor, FCA’s shares rose 10 per cent on the news.

Loser: the American taxpayer.
The US government effectively gave away Chrysler out of bankruptcy to Fiat on the promise of an efficient new engine technology that would reduce emissions.

That technology (MultiAir) was developed with then fellow-bankrupt General Motors and has long since been superseded in efficiency by other technologies.

Giving away Chrysler, as a brand, wasn’t a big deal as the SUV surge killed off every sedan on its books, but giving away Jeep was.

Jeep was the unsung lynchpin of the entire deal. Of all the brands in the merged company, Jeep is the only global one, the most profitable one and the one positioned exactly at the centre of the SUV boom.

Jaguar Land Rover
PSA boss Carlos Tavares is fan of JLR. He’s such a big fan that he tried to buy it in April and regularly revisits the conversation.

Now, if it’s synergies we’re after along with a viable premium and luxury product and a bonus production EV platform, JLR is suddenly looking very, very attractive.

A buyout is unlikely, given Tata’s position on it, but a technical tie-up is a high percentage option.

Loser: Tesla.
Yes, pretty much every story these days needs a Tesla angle, but this deal could cost Tesla billions of dollars it can’t afford.

Tech-barren FCA agreed in April to pay Tesla up to US$2 billion for the electric carmaker's CO2 credits to meet its EU7 emissions obligations, but with the merger, FCA won’t need those anymore.

PSA has so much room to move within the CO2 window of Europe’s EU7 regulations that it can easily swallow FCA’s emissions.

It has so much room to move that, according to the European managing director of the International Conference on Climate Change, Peter Mock, FCA’s emissions position will actually be better merged with PSA, for free, than it would be with Tesla, for US$2 billion.

Australians. Sort of.
Right now, the Holden flagship is the Commodore, which is effectively the Opel Insignia. Which is a GM-engineered product that’s now owned by PSA.

Holden fans could rightly feel like they’ve been abandoned entirely by General Motors, the US carmaker that first closed local production and then took the last remaining toys – the European-engineered cars – off the table (eventually) when they sold Opel to PSA.

Back when the local Commodore was king, the support cast came entirely from Opel. The Barina, the Astra, the Vectra. All of them designed and (mostly) built in Russelsheim, Germany. No more.

The most likely future for larger Holden sedans is in the form of the Chinese-built Buick Regal.

Still, there’s always the prospect of a Holden Quattroporte Ute to dream of.

Winner: Carlos Tavares.
The 61-year-old PSA CEO learned his craft under Carlos Ghosn and boosts his reputation seemingly at every turn lately.

He turned PSA from a loss maker to a profit maker and only took a year to do the same thing to Opel, even though GM had lost money on its European offspring for 30 years.

The Portuguese manager now has five years of job security as CEO of the merged company, taking him to retirement age, after being at the core of pulling it all together.

A car guy through and through, he’s been driving rally cars since he was 22 and his collection includes a 1979 Peugeot 504 V6 Coupé, a 1976 Alpine A110 and a 1966 Porsche 912. He’ll also have a big bonus with which to buy more of whatever he likes.

Renault.
The egg is raw on the French faces at Renault after being either played all along by FCA and PSA or by being 3D-chessed by them both after Renault and Nissan’s own disarray tore their negotiations apart.

The biggest of the French carmakers (well, until last night), Renault once looked like the stable, serious, don’t-mess-with carmaker of Europe when it came to getting deals done. Its alliance with Nissan brought it both billions in cashflow and dollops of technology, and then it grabbed the ailing Mitsubishi and suddenly had the most plug-in hybrid sales in the world.

Better still, the board arrangements meant it got to tell Nissan what to do without any reciprocity, which rankled the Japanese so much that a core of Nissan executives plotted the downfall of kingmaker, Carlos Ghosn.

Then came the FCA merger negotiations and once they’d reached a certain level of maturity, Nissan saw another perfect place to throw a hand grenade and blew it all up, with help from the French Government.

And it’s gone from the biggest to the second biggest carmaker in France, all without the Jeep prize it (and everybody else) so desperately sought.

Winner: Dongfeng.
The state-owned Chinese carmaker owns 13.6 per cent of PSA and now has a useful chunk of the merged company, too.

Now, it’s been a bit of a struggle, but PSA has turned things around. It’s still a problem in China, though, where only 6.7 per cent of PSA turnover came from last year.

Its share of PSA was (yesterday) worth about US$2.5 billion, and it has three shared factories in Wuhun and one in Chengdu in China. (PSA also has a fifth Chinese facility, a 50:50 joint venture with Changan, building the DS in Shenzhen).

The upside is that if Dongfeng really wants to expand out of China, it now has paths to both Europe and America.

The downside is that Dongfeng doesn’t yet have the product or the funding to expand to either Europe or America.