A merger of Fiat Chrysler Automobiles and PSA Group would do little to solve one of their biggest shortcomings: They have a very small presence in the world’s largest car market.
While rivals such as Volkswagen, Toyota and General Motors have relied on China for much of their growth for years, PSA and Fiat Chrysler have made little progress in the country of almost 1.4 billion people.
PSA's China venture, Dongfeng PSA, saw its sales more than halve in the first nine months to 91,049 units, while Fiat Chrysler's sales from its venture with Guangzhou Automobile Group fell 46 percent to 52,372 units.
That compares with a 10 percent industrywide decline in China.
Even as demand in China is slumping now, the country’s size makes it a crucial market going forward.
Reasons for the two automakers’ sluggish performance are rooted in their management and competitiveness, which means a potential combination could make things even more complicated, said Cui Dongshu, secretary general of industry body China Passenger Car Association.
"I don't see a point in the consolidation in terms of their China business," Cui said. "There won’t be much synergy in sourcing and product lineups."
Fiat Chrysler and PSA, which confirmed Wednesday their talks about a possible tie-up, have combined market share of less than 1 percent in China and rank outside the Top 10.
Fiat Chrysler’s Jeep models have found some followers, but its smaller cars have failed to gain traction.
PSA, meanwhile, has struggled to bolster its sales in China even after a 2014 pact with Dongfeng Motor that gave it better access to the market and also included the Chinese partner getting a stake in the French automaker.
Automakers in China are going through the worst demand contraction on record, with wholesales sliding for 15 straight months and no recovery in sight.
The China Association of Automobile Manufacturers forecasts deliveries to dealers in 2019 will fall for the second straight year. Industry insiders are predicting a wave of consolidation that will weed out weaker players.
Said Cui: "Survival is the key issue here."
