If the merger between PSA Group and Fiat Chrysler Automobiles to create the world’s fourth-largest automaker had a certain logic when it was announced last Oct. 31, the case for a tie-up is even stronger now, with the auto industry on the verge of recession from the coronavirus pandemic.
The idea is that increased economies of scale would reduce unit costs and better amortize huge investments in future technologies, ensuring profits for the merged entity in years to come. Now, such synergies are becoming a basic tool to survive a shock that many experts say will be deeper, if not longer, than the 2008-09 financial crisis.
One positive effect of the coronavirus crisis, if there is one, is that some future FCA products are being put on hold or delayed. This will not only preserve cash in the short term, but also offer the possibility after the merger of more quickly aligning two product cycles that were locked into a set cadence. The virus is zeroing the clock the same way for any automaker.
So the deal still makes good sense.
But this is the wrong time to revise the financial terms of the merger, which call for a special dividend of 5.5 billion euros ($5.9 billion) to FCA shareholders, the divestment of PSA’s controlling stake in supplier Faurecia, and 1.1 billion-euro dividends for shareholders in the 2019 fiscal year.
With stock markets on a roller coaster and car sales in free fall over the world, any forward-looking statement could become obsolete in just few weeks. Each company has lost half of its market capitalization since the merger was announced. If Europe regains traction before the U.S. does, PSA could benefit. If the opposite happens, FCA could be stronger.
