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Fiat Chrysler and PSA, the Maker of Peugeot, Confirm Merger Talks Fiat Chrysler and Peugeot Parent Are in Merger Talks
(about 5 hours later)
Fiat Chrysler and the PSA Group, the French maker of Peugeot and Citroën cars, said Wednesday that they were in talks about a possible merger, the latest example of how automakers are joining forces to survive major technological shifts in the industry. Fiat Chrysler and PSA of France are not exactly an automotive dream team. They lack a strong presence in China, lag in electric cars and rely heavily on the sputtering European market for sales.
In an imperfect world, however, they may be each other’s best hope to survive the technological upheaval that is upsetting the balance of power in the auto industry.
PSA, the maker of Peugeot and Citroën cars, and Fiat Chrysler Automobiles said Tuesday they were in talks about a merger that would create Europe’s biggest carmaker and the fourth largest in the world, behind the Renault-Nissan Alliance, Volkswagen and Toyota. With combined annual sales of 8.7 million vehicles, the new entity would be slightly larger than General Motors.
Fiat Chrysler and PSA “both need this,” said Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen in Germany who follows the auto industry. “For both companies, this deal is better than no deal.”
Fiat Chrysler said in a statement that it was having discussions with PSA Group “on a possible business combination.”Fiat Chrysler said in a statement that it was having discussions with PSA Group “on a possible business combination.”
In its own statement on Wednesday, PSA Group, citing media reports about a potential deal between the two companies, said it “confirms there are ongoing discussions aiming at creating one of the world’s leading automotive groups.” In its own statement on Wednesday, PSA Group, citing media reports about a potential deal, said it “confirms there are ongoing discussions aiming at creating one of the world’s leading automotive groups.”
Shares in both companies jumped in response, with Fiat Chrysler rising more than 7 percent and PSA nearly 9 percent. Shares in both companies jumped in response, with Fiat Chrysler rising 10 percent and PSA 5 percent.
A merger would create the world’s fourth largest carmaker, after Toyota, the Renault-Nissan-Mitsubishi alliance and Volkswagen. Earlier this year, competitive pressures pushed Fiat Chrysler to explore a deal with Renault, another French automaker, before talks fell apart. Earlier this year, competitive pressures pushed Fiat Chrysler to explore a deal with Renault, another French automaker, before talks fell apart. A merger with PSA is seen as more likely to succeed because the company is not already in a relationship. Renault’s troubled alliance with Nissan complicated its attempt to link up with Fiat Chrysler.
Neither Fiat Chrysler or PSA is the other’s dream partner, analysts said. They share many of the same weaknesses, including dependence on the shrinking European market, a tiny market share in China and a lack of strong luxury brands. The auto industry is moving toward battery-powered vehicles and autonomous driving technology, and companies like Tesla are challenging the established carmakers. Smaller companies like PSA and Fiat Chrysler may lack the size to manage the enormous costs of this transition.
But neither has any other realistic options. Both need to get bigger to avoid being crushed by tectonic changes in the auto industry. “This stuff is so expensive and no one knows when it’s going to gain traction or make money,” said Michelle Krebs, executive analyst at AutoTrader, a car sales website.
“Both need this,” said Ferdinand Dudenhöffer, a professor at the University of Duisburg-Essen in Germany who follows the auto industry. “For both companies, this deal is better than no deal.” Other companies like Ford and Volkswagen or Honda and G.M. have formed partnerships to share costs of developing new technology. But Fiat may need a full merger so that it can take advantage of Peugeot’s electric car technology to meet European Union limits on carbon dioxide emissions and avoid substantial fines.
The auto industry is moving toward battery-powered vehicles and autonomous driving technology. Smaller companies like PSA and Fiat Chrysler may lack the size to manage the enormous costs of this transition. Further intensifying the competitive landscape are powerful technology companies with considerable war chests, like Google, which has invested heavily in autonomous driving technology. Ride-sharing companies like Uber and Lyft have eliminated the need for many people to buy their own cars, forcing automakers to adjust assumptions that have guided their business decisions for decades.
Further intensifying the competitive landscape are powerful technology companies with considerable war chests, like Google, which have expressed interest in the automotive market. Ride-sharing companies like Uber and Lyft have raised questions about whether many people need to buy their own cars, putting pressure on automakers to adjust assumptions that have guided their business decisions for decades. A combined company would surpass Volkswagen as the largest carmaker in Europe but still face tough challenges. In China, the world’s largest market for new cars, it would trail Volkswagen, General Motors and major Japanese automakers. Fiat Chrysler has a minimal presence there.
A combined company would surpass Volkswagen as the largest carmaker in Europe but still face tough challenges on a number of fronts. In China, the world’s largest market for new cars, it would trail rivals like Volkswagen, General Motors and major Japanese automakers. Fiat Chrysler has a minimal presence there.
PSA has a joint venture with a Chinese automaker, Dongfeng Motor Group, but it has struggled to gain market share against other foreign brands in China. Making up that ground could get even tougher as sales fall in the once vibrant market because of slowing economic growth and cuts in government subsidies for car buyers.PSA has a joint venture with a Chinese automaker, Dongfeng Motor Group, but it has struggled to gain market share against other foreign brands in China. Making up that ground could get even tougher as sales fall in the once vibrant market because of slowing economic growth and cuts in government subsidies for car buyers.
In June, political issues scuttled the merger talks between Fiat Chrysler and Renault, and could prove to be a stumbling block in any deal between Fiat Chrysler and PSA. The French government has a stake in PSA giving it 19 percent of the company’s voting rights. In June, political issues helped scuttle the merger talks between Fiat Chrysler and Renault and could prove to be a stumbling block in any deal between Fiat Chrysler and PSA. The French government has a stake in PSA giving it 19 percent of the company’s voting rights.
The French Finance Ministry said in a statement Wednesday that it was open to a merger. The discussions “confirm the global consolidation trend in the automotive industry which is needed and in which France wants to be a major player,” the ministry said.The French Finance Ministry said in a statement Wednesday that it was open to a merger. The discussions “confirm the global consolidation trend in the automotive industry which is needed and in which France wants to be a major player,” the ministry said.
But the government also signaled that it would attach conditions, including protecting factories in France and ensuring that the new company produced batteries in Europe. Batteries account for as much as half the cost of electric cars but are produced primarily in Asia.But the government also signaled that it would attach conditions, including protecting factories in France and ensuring that the new company produced batteries in Europe. Batteries account for as much as half the cost of electric cars but are produced primarily in Asia.
Fiat Chrysler said this month that it planned to begin producing battery assemblies for electric cars in Turin, which could satisfy the French government’s concerns that much of the revenue and jobs from electric cars will go to Asia.
Job cuts and factory closings would be inescapable if a merger goes through. Carlos Tavares, chief executive of PSA and the likely head of the new auto group, has demonstrated skill at cutting costs after acquiring Opel from General Motors in 2017. But Fiat and Opel are still burdened with factories that operate well below capacity and act as a serious drag on profits.Job cuts and factory closings would be inescapable if a merger goes through. Carlos Tavares, chief executive of PSA and the likely head of the new auto group, has demonstrated skill at cutting costs after acquiring Opel from General Motors in 2017. But Fiat and Opel are still burdened with factories that operate well below capacity and act as a serious drag on profits.
A merger could give PSA access to the United States market for the first time in decades. But it is unclear whether Peugeot and Citroën sedans and compact cars would appeal to American buyers, who overwhelmingly prefer pickups and S.U.V.s. Fiat has had little success selling its Fiat 500 compact or Alfa Romeo cars in the United States. A merger could give PSA access to the United States market for the first time in decades. But it is questionable whether Peugeot and Citroën sedans and compact cars would appeal to American buyers. They overwhelmingly prefer pickups and S.U.V.s, a segment already well covered by Fiat Chrysler’s Jeep brand. Fiat has had little success selling its Fiat 500 compact or Alfa Romeo cars in the United States.
Fiat Chrysler and PSA would still be weak in the premium segment dominated by Mercedes, BMW and Audi. Fiat’s Maserati and Alfa Romeo brands are admired for their styling but have tiny market shares compared to the German rivals. Profit margins on luxury vehicles tend to be much higher than those of economy models. “Cars aren’t going to help Fiat Chrysler here much,” said Ms. Krebs, who noted that sales of passenger cars were near all-time lows.
Neither Fiat Chrysler or PSA is considered a leader in electric vehicles. That market is growing fast but also becoming more competitive. Tesla is making inroads in Europe, and Volkswagen is in the midst of introducing a line of battery-powered models. Fiat Chrysler and PSA would still be weak in the lucrative premium segment dominated by Mercedes, BMW and Audi. Fiat’s Maserati and Alfa Romeo brands are admired for their styling but have tiny market shares compared with the German rivals. Profit margins on luxury vehicles tend to be much higher than those of economy models.
Neither Fiat Chrysler nor PSA is considered a leader in electric vehicles. That market is growing fast but also becoming more competitive. Tesla is making inroads in Europe, and Volkswagen on Monday will begin mass producing a battery-powered hatchback meant to be as affordable as a gasoline or diesel model.
By combining, PSA and Fiat Chrysler could share the costs of developing electric cars. But they must move quickly to avoid becoming irrelevant.By combining, PSA and Fiat Chrysler could share the costs of developing electric cars. But they must move quickly to avoid becoming irrelevant.
Amie Tsang and Liz Alderman contributed reporting. Amie Tsang, Liz Alderman and Keith Bradsher contributed reporting.