MILAN/PARIS -- Fiat Chrysler Automobiles' talks to combine with French carmaker PSA Group point to intensifying pressure on global carmakers to join forces in squeezing costs and tackling the expensive shift to electric cars.
Fiat and Peugeot maker PSA confirmed Wednesday they’re holding discussions aimed at creating one of the world’s leading auto groups.
The companies didn’t elaborate on what a deal would look like. Under one recent proposal, PSA would be the acquiring entity and have more board seats, according to people familiar with the matter. PSA’s board is holding an extraordinary meeting later Wednesday, said the people who asked not to be named because the information isn’t public.
A merger of Fiat Chrysler and PSA, the No. 2 for car sales in Europe, would create a regional powerhouse to rival Volkswagen AG, and have a stock-market value of about $49 billion — comparable to Japan’s Honda Motor Co. The tie-up would also bring together two automaking dynasties, the billionaire Agnelli clan in Italy and the Peugeot family of France.
Their talks come several months after Fiat Chrysler and PSA, led by CEO Carlos Tavares, explored a partnership on pooling investment to build cars in Europe, and following the collapse in June of negotiations between the Italian-American carmaker and French competitor Renault SA.
Automakers face tremendous pressure to pool their resources for platform development, manufacturing and purchasing as they battle through trade wars, a global slowdown and an expensive shift toward electrification and autonomous driving. Producers face the additional burden in Europe of new rules on emissions.
Against this backdrop, the pace of deal-making has picked up. Volkswagen in July said it will work with Ford Motor Co. on electric and self-driving car technology, while Toyota Motor Corp. is strengthening ties with partners such as Subaru Corp. and China’s BYD Co. The Indian conglomerate that owns Jaguar Land Rover has said it’s open to finding partners for the automaker but isn’t planning on selling the embattled unit.
Dismal car sales have also added to the mix. Volkswagen on Wednesday lowered its outlook for vehicle deliveries this year due to a faster-than-expected decline in auto markets.
In any deal between Fiat and PSA, the French government would play a key role because France is one of the biggest owners of PSA, whose brands include Peugeot, Opel and Citroen.
Under one recent proposal, Fiat and PSA have discussed making Tavares CEO of the combined company while John Elkann, scion of the Italian-American automaker’s founding Agnelli family, would be chairman, one person said.
Logical deal seen
Analysts greeted word of a possible deal warmly. “In our view the combination of FCA and PSA has more logic than the previously attempted FCA-RNO deal and has a far greater chance of success,” Max Warburton, a Bernstein analyst, wrote in a note to clients.
“If completed, we believe this should ignite more rational industry behavior around allocation of capital, and this particular merger makes materially more sense than a potential FCA-Renault merger,” said Arndt Ellinghorst, an Evercore analyst. He said it’s an opportunity to achieve “gross synergies” above 7 billion euros by 2023 due to overlapping businesses in Europe, Latin America and China.
The companies’ Chinese businesses have been trailing competition and it’s unlikely that a merger would quickly reignite their revenue growth in the world’s biggest car market. China’s Dongfeng Motor Corp., which holds about 12% of PSA, could also have a say on the deal.
PSA has been floated as a logical merger partner with Fiat, because of their complementary product and geographic fit, and the two sides talked about a possible partnership earlier this year. However, the Italian-American carmaker instead pursued a deal with Renault. Those talks were called off in June due to opposition from the French government stemming from a lack of support from Renault’s Japanese alliance partner Nissan Motor Co.
FCA Chairman Elkann had walked away from the potential deal with Renault blaming “political conditions in France.” Fiat Chrysler signaled at the time that the French state would have to give up its sway over Renault for a resumption of talks, people with knowledge of the situation said at the time.
Tavares said earlier this year that Peugeot would be returning to the U.S., which the brand exited in 1991. Tavares said the brand will begin shipping vehicles to North America from Europe or China in 2026.
FCA is seen as a laggard in new technologies such as electrification and autonomy, which are expected to cost automakers billions of dollars over the next decade. The company has sought to secure its future with a larger partner for several years, dating back to late CEO Sergio Marchionne’s failed courtship of General Motors in 2015.
Rumors of FCA talks with other automakers have swirled since then with varying intensity.