By Canadian Press

Fiat Chrysler merger with PSA appears headed for approval

Nov 1, 2019 | 10:58 AM

DETROIT — In a merger deal that appears to be heading for approval, Fiat Chrysler stands to gain electric vehicle technology while PSA Peugeot Citroen could benefit from a badly needed dealership network to reach its goal of selling vehicles in the U.S.

The Wall Street Journal, citing sources it did not identify, reported Wednesday that the PSA board has approved the deal, which would create the world’s fourth-largest automaker with a combined market value of around $50 billion. Neither company would comment.

Experts say the two automakers would be able to share car, SUV and commercial vehicle designs, helping each other fill weaknesses and share costs that will make them a strong global player.

“We view the combination of these two companies as reasonable given global competition, high capital intensity, and industry disruption from electrified powertrain as well as autonomous technologies,” Morningstar analyst Richard Hilgert wrote in a note to investors.

Fiat Chrysler Automobiles confirmed Wednesday that it’s in talks with French rival PSA in its second try this year to reshape the global auto industry at a time of heightened uncertainty for the business. The talks started after a merger with France’s Renault collapsed earlier this year. FCA for years has been looking for a partner to share huge capital costs to develop future technologies.

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The timing of any deal is unclear, but the Peugeot board was meeting Wednesday, said a person close to the discussions on condition of anonymity.

Here are four areas that could be crucial to the two automakers’ success:

TECHNOLOGY

For years, Fiat Chrysler has lagged its rivals in electric vehicle technology, with its former CEO once trying to discourage people from buying its only fully electric car in the United States, the Fiat 500E, because he lost money on each sale. The company has made progress on gas-electric hybrids and may have plans for more fully electric vehicles, but PSA has valuable technology that FCA can use, said Navigant Research analyst Sam Abuelsamid.

Peugeot was relatively late to the electric vehicle game but is now working fast to catch up, notably with fellow French rival Renault. CEO Carlos Tavares has made a point of stressing the company’s need to adapt to changing technology at car shows and earnings calls. Last year he announced plans to offer 40 electric models across its lineup by 2025.

“Electrification hasn’t been a huge part of their play up until now,” Abuelsamid said. “Between the two of them, I think they could generate some scale for whatever they’re doing, sharing component costs, development costs across electrical platforms,” he said.

More electric vehicles also would help FCA meet pollution and fuel economy regulations in Europe.

As far as autonomous vehicles, neither company is among the leaders, Abuelsamid said. But that’s a technology that’s years into the future, giving them time to share the huge expenses and catch up together. FCA also has alliances with other companies such as Google spinoff Waymo that could bring autonomous vehicle technology to the market when ready, Abuelsamid said.

UNITED STATES

At an appearance in Detroit last year, Tavares said PSA would be selling vehicles in the U.S. within the next decade.

“If you want to be a global player, you have to be there,” he said.

The company has since been working on ride-hailing services and talking to dealerships, but little progress has been revealed. A deal with FCA could accelerate that goal greatly.

With 2,640 dealers across the U.S., Fiat Chrysler would be a ready distribution network for Peugeot and other PSA vehicles. PSA even could remain separate from Fiat Chrysler brands by selling in underutilized Fiat and Alfa Romeo dealerships.

PSA specializes in small and medium-sized cars, which have fallen out of favour with U.S. and even some international buyers who prefer SUVs and trucks. PSA could build its own vehicles off the underpinnings of FCA’s hot selling Jeep SUVs and Ram trucks, Abuelsamid said.

EUROPE

Fiat Chrysler and PSA are likely to have an easier time completing a merger due to decades of co-operation in both Italy and France on building commercial vehicles. But Europe will also pose one of the bigger problems. There is a large overlap in the types of smaller cars and sedans built under the Fiat, Peugeot, Citroen and Opel marquees.

That raises the spectre of factory closures to deal with overproduction as European car sales lag. France and Italy will fight to protect jobs; Italian plants are already working under capacity despite plans to repurpose them for higher-margin premium brands Alfa Romeo and Maserati.

Analysts say that Opel, purchased by PSA from General Motors in 2017, could face the most drastic cuts, as it is now part of a French company even though most of its plants are in Germany. The merger is expected to help Fiat Chrysler get closer to meeting strict emissions standards with analysts expecting PSA’s electric and hybrid powertrains to help speed the transition. But Italian unions say that there needs to also be political involvement in the admittedly painful transition to electrified powertrains.

ASIA

The merger is expected to do very little to help the two carmakers in the world’s largest market: China.

Despite a 2014 investment in Peugeot by the Chinese carmaker Dongfeng, there has been no real push to expand the French carmaker’s sales in the Chinese market. This seems to indicate that the two carmakers are not as intertwined in China as expected.

PSA Peugeot last year reported its sales in China down 34% in a market that slipped just 2%, with the Dongfeng joint venture posting losses last year of 234 million euros.

Fiat Chrysler, which produces four Jeep models in a joint venture with the Chinese company GAC, saw sales dropped 24% to 163,000 in 2018. It cited higher competition the SUV segment. Fiat had just a 0.8% market share in China last year.

While China sales are off again this year, they are projected to keep growing in future years.

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Charlton reported from Paris and Barry reported from Milan.

Tom Krisher, Colleen Barry And Angela Charlton, The Associated Press