Fiat Chrysler eyes Peugeot merger, seeking strength in size

Fiat Chrysler eyes Peugeot merger, seeking strength in size

MILAN — Fiat Chrysler Automobiles said Wednesday it is in talks with French rival PSA Peugeot in its second bid this year to reshape the global auto industry at a time of heightened uncertainty for the sector.

A merger would create the fourth-largest automaker, with a combined market value of around $50 billion, and the potential for big savings in Europe just as the industry struggles with slowing sales and the need to invest heavily in technologies like electric cars.

But a deal does not help either in expanding in China, the world’s largest market, where both are weak, analysts said.

In a statement, Fiat Chrysler said the discussions are “aimed at creating one of the world’s leading mobility groups,” but gave no further details.

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.

Shares in Fiat Chrysler shot up nearly 9%, just a day before it releases its third-quarter earnings, while Peugeot shares surged 6%.

Fiat Chrysler has long been looking for a partner to help shoulder investments in the capital-heavy industry, under the view that companies that fail to consolidate would inevitably struggle. The push is even more urgent given the transition across the industry to electric cars and autonomous driving — technologies where Fiat Chrysler lags.

“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,” says Richard Hilgert, an analyst at Morningstar Equity Research.

Fiat Chrysler’s talks this year with another French carmaker, Renault, to create what would have been the third-largest automaker broke down over French government concerns about the role of Japanese partner Nissan and criticism from Renault’s top union.

Analyst Ferdinand Duedenhoeffer, head of the Center for Automotive Research, said the French government is unlikely to play the spoiler role again, both because it would be an unpopular move and because its role in Peugeot is weaker.

But he said they would insist that inevitable job cuts not be made in France, which will expose Opel, which Peugeot bought in 2017, as the sacrificial lamb in any merger deal. Opel is based in Germany.

The real problem the carmakers face will be in China, which represents the future for most automakers.

“FCA and Peugeot are both lousy in China, they just lose money,” Dudenhoeffer said. “I think they have to find a solution but it will be a big challenge.”

Possibly complicating things, the Chinese government has a stake in Peugeot through Dongfeng Motors. Dongfeng, the Peugeot family, and the French state investment bank BPI France each have 12.23% of capital and 19.5% voting rights in Peugeot.

A merger could see the Chinese government take a role in a company that includes Chrysler, a U.S. industry icon. That comes on top of Fiat Chrysler’s joint venture with another Chinese company, GAC.

“The Chinese government doesn’t want to have a strong connection with an American company,” Dudenhoeffer said, due to economic damage brought by the Trump administration’s tariffs.

Dongfeng had no comment on the talks, while a French Finance Ministry official said the government would be “vigilant” on maintaining Peugeot’s industrial footprint in France.

The official, who spoke only on condition of anonymity, also noted that the operation speaks to the success of Peugeot’s turnaround under CEO Carlos Tavares. The Italian government said it was monitoring developments.

Fiat Chrysler Automobiles was formed in 2014 out of a merger of Italy’s Fiat and the American company Chrysler, which Fiat brought back from bankruptcy. The company is controlled by the Fiat-founding Agnelli family, represented by chairman John Elkann.

Both Fiat Chrysler and Peugeot have been controlled by families since their formation – Peugeot started making cars in 1896 and Fiat three years later – which could contribute to a climate of mutual understanding.

A merged carmaker would have combined sales of nearly 9 million a year, based on 2018 results. By comparison, both Volkswagen and Toyota sell over 10 million cars a year, while the Renault-Nissan-Mitsubishi alliance almost 11 million.

Fiat Chrysler has a larger global footprint than Peugeot, whose focus is on Europe, where it is the second-largest carmaker.

While Fiat Chrysler last year sold 4.8 million cars globally, it makes the lion’s share of its profits in the United States and has been struggling in Asia and Europe. Peugeot sold 3.9 million cars last year and is looking to move into the United States.

Fiat Chrysler is making a concerted push into electric and hybrid vehicles, where it has lagged, focusing in particular on its premium brands Alfa Romeo and Maserati.

Peugeot, meanwhile, has performed a remarkable turnaround in recent years, going from one of the industry’s sicker car companies to one of its more powerful. That’s notably thanks to an unusual $4.1 billion bailout in 2014 in which Dongfeng and the French state gained stakes.

In 2017, Peugeot bought General Motors’ Opel and Vauxhall brands for $2.33 billion, making it Europe’s No. 2 automaker after Volkswagen.

French unions are already warning about job losses, and angry that they were not informed of the discussions.

“The goal of any merger is to increase profitability. And behind that, attacks are being prepared against the workers of PSA and FCA,” Jean-Pierre Mercier, representative of the CGT union at PSA Peugeot’s headquarters east of Paris, told The Associated Press.

“It’s not just about job losses,” he said. “It’s also about collective rights and pay levels.”

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Grant Hunter, associate minister of red tape reduction, is proud of the work his ministry has done over the COVID-19 pandemic. (Photo contributed)
Alberta gets A for red tape reduction

The Alberta government is getting a thumbs up for its work on… Continue reading

The first Pfizer-BioNTech COVID-19 vaccine dose in Canada is prepared at The Michener Institute in Toronto on Monday, Dec. 14, 2020. (THE CANADIAN PRESS/Frank Gunn)
Not all long-term care workers have received their vaccines including a Red Deer facility

There continues to be confusion in long-term care and supportive living facilities… Continue reading

Cattle graze winter pasture in the foothills of the Canadian Rockies near Longview, Alta. on Jan. 8, 2004. Concern over the provincial government’s decision to drop a coal policy that has protected the eastern slopes of the Rockies for decades is growing among area communities. At least six cities, towns and municipal districts in southwest Alberta have now expressed concern about the decision and the fact it was made with no consultation. The latest is Longview, where mayor Kathie Wight is drafting a letter to the government opposing the move. THE CANADIAN PRESS/Jeff McIntosh
More southern Alberta communities voice concern over province’s plans to expand coal

Concern over the Alberta government’s decision to drop a coal policy that… Continue reading

Some residents say there is no longer an effective Nordegg fire department to respond to emergencies in the West Country. (Contributed photo).
Some Nordegg residents worry about lack of emergency response in the West Country

The possibility of wildfires or accidents is ‘scary’ says former fire leader

FILE - Pittsburgh Penguins general manager Jim Rutherford has his final meeting of the season with the media at the NHL hockey team's practice facility in Cranberry, Pa., in this Wednesday, May 9, 2018, file photo. Pittsburgh Penguins general manager Jim Rutherford, a Hall of Famer who helped lead to a pair of Stanley Cup titles, resigned abruptly on Wednesday, Jan. 27, 2021. (AP Photo/Gene J. Puskar, File)
Penguins GM Jim Rutherford, who oversaw Cup wins, resigns

Penguins GM Jim Rutherford, who oversaw Cup wins, resigns

Outfielder George Springer is shown in a screengrab from a virtual news conference he took part in on Wednesday, Jan.27, 2021. Springer says he's excited to be a part of a young, talented team like the Toronto Blue Jays, a club he believes has plenty of potential. THE CANADIAN PRESS/HO
Blue Jays introduce outfielder George Springer after signing him to six-year deal

Blue Jays introduce outfielder George Springer after signing him to six-year deal

Bucs fans set to cheer inside, outside Super Bowl stadium

Bucs fans set to cheer inside, outside Super Bowl stadium

Hamilton Tiger Cats quarterback Jeremiah Masoli tries to fend off Saskatchewan Roughrider Zack Evans during first half CFL football game action in Hamilton on Thursday, June 13, 2019. THE CANADIAN PRESS/Peter Power
Quarterback Jeremiah Masoli signs extension with Hamilton Tiger-Cats

Quarterback Jeremiah Masoli signs extension with Hamilton Tiger-Cats

Ottawa Senators defenceman Thomas Chabot (72) tries to clear Vancouver Canucks centre Jay Beagle (83) from in front of Senators goaltender Marcus Hogberg (1) during second period NHL action in Vancouver, Wednesday, January 27, 2021. THE CANADIAN PRESS/Jonathan Hayward
Demko dynamite as Vancouver Canucks beat Ottawa Senators 5-1

Demko dynamite as Vancouver Canucks beat Ottawa Senators 5-1

Milwaukee Bucks forward Giannis Antetokounmpo (34) knocks a rebound away from Toronto Raptors guard Norman Powell (24) during the first half of an NBA basketball game Wednesday, Jan. 27, 2021, in Tampa, Fla. (AP Photo/Chris O'Meara)
Lowry reaches 10,000-point plateau as a Raptor in 115-108 loss to Milwaukee

Lowry reaches 10,000-point plateau as a Raptor in 115-108 loss to Milwaukee

Dallas Stars right wing Alexander Radulov (47) and defenseman John Klingberg (3) celebrates a goal by Joe Pavelski against the Nashville Predators during the third period an NHL hockey game, Sunday, Jan. 24, 2021 in Dallas. (AP Photo/ Richard W. Rodriguez)
‘Sloppy’ hockey is the name of the game early in NHL season

‘Sloppy’ hockey is the name of the game early in NHL season

Ottawa Senators head coach D.J. Smith instructs his team in the third period of an NHL hockey game against the Colorado Avalanche in Denver on February 11, 2020. THE CANADIAN PRESS/AP, David Zalubowski
With less practice time, NHL morning skates making a comeback in 2021

With less practice time, NHL morning skates making a comeback in 2021

Most Read