Munich, Paris, Milan, New York The verdict of PSA-Manager about the possible merger partner is tough. The offer of Fiat Chrysler (FCA) for many future technologies is simply “not at the state of the art”, it says in a 40-page executive presentation in November, which is available to the Handelsblatt. Neither the alternative drives and driver assistance systems, nor cockpit and connectivity solutions from FCA would correspond to the current state of the art.
The Italian-American automaker did with the Fiat 500e just a pure electric car in the United States in the portfolio. When it comes to autonomous driving, the group lags behind the competition. In addition, there is an unnecessarily “high variance” of platforms and different cockpit solutions for each brand – from Jeep to Alfa Romeo.
Others would probably conclude from such a listing Fiat Chrysler with his rather yesterday’s combustion technology is a hopeless case. But PSA chief Carlos Tavares and his team believe that in addition to risks, the group also has plenty of opportunities. Because FCA has exactly what the French car manufacturer (Peugeot, Citroën, DS, Opel) lacks: a high market share in the USA, a “strong SUV range” and “several worldwide models”.
The consequence: PSA appears to be determined to merge with FCA. According to the Reuters news agency, the two companies could finalize their merger on Wednesday and sign a Memorandum of Understanding (MOU). Subject to the antitrust approval, this would result in the fourth largest car group in the world Volkswagen, Renault-Nissan and Toyota,
Under one roof, the corporations would sell around 8.7 million vehicles a year, generate more than 180 billion euros in sales and employ almost 410,000 people worldwide. Over 50 managers in both groups have been working on the merger for weeks. Officially it should a marriage among equals PPE is economically stronger.
Operatively, the potpourri of 16 brands should therefore be led by the notorious Portuguese killer Tavares, who saved Peugeot first and then Opel redeveloped. In return, the supervisory body of the new mammoth group will lead Fiat heir John Elkann. Together, the aim is to leverage 3.7 billion euros in synergies every year – without closing any of the 120 or so plants.
With this promise, PSA convinced the unions of the deal. “A very large majority of the employee representatives supported the project,” said Patrick Michel of Force Ouvrière a few weeks ago.
The workers’ leaders of the French works council also welcomed the planned merger unanimously. The two bodies only have an advisory function and no decision-making authority. But their vote shows that PSA management need not fear resistance.
Enormous excess capacity in Europe at Fiat
Ferdinand Dudenhöffer, head of the Center Automotive Research (CAR), has doubts whether all factories are really safe. Rather, the industry expert believes that efficiency king Tavares will seek “creative” solutions to reduce overcapacity.
As with the German PSA subsidiary Opel pre-trained, Tavares could, for example, aim for partial sales including outsourcing of thousands of employees. The pressure to act is enormous. According to Dudenhöffer’s calculations, Fiat alone Chrysler estimated more than 10,000 employees too many on board.
The analysts of the major Swiss bank UBS consider a merger of PSA and FCA to make nine of 28 factories in Europe obsolete and two out of five in Latin America. So much for the theory. In practice, such cuts would be made especially in Fiat Land Italy encounter great resistance. Fear of job losses is particularly high in southern Italy, as the country is just emerging from a three-year recession.
Seven of FCA’s eleven European factories are in Italy, the others in France, Poland and Serbia. The occupancy rate is often poor. The largest plant is in Melfi in the Basilicata region, one of the poorest areas in Italy. The 500X, the Jeep Renegade and the Jeep Compass are built there. From mid-2020, electric and hybrid models of the two jeeps are also to be manufactured.
Around 7,300 people work in Melfi. But more than 4,000 of them had to work short-time recently, with a reduction in working hours of 60 percent, a local newspaper reported.
Italy’s premier demands job guarantees
If in doubt, politics should step in and protect the Italian works. Prime Minister Giuseppe Conte visited the Melfi factory at the end of November and said that the Italian government could not be indifferent to the proposed merger with PSA.
He spoke to FCA boss Elkann about the merger with PSA. “This project must in no way endanger the factories and employment in Italy,” said Conte. “And that also applies to the suppliers.”
Such announcements make it clear which thick board the managers of PSA and FCA want to drill. In order to be more powerful than alone, the companies have to interlink four different cultures. “Worlds collide. There is certainly a risk of failure, ”says a PSA manager.
After all, the French culture of Peugeot and Citroën as well as the German culture of Opel with the American culture of Jeep and Chrysler to combine with the Italian from Fiat. However, the advantages of a merger are obvious. PSA sells more than three quarters of its cars in Europe. To date, the French have not scored in either China or the USA. PSA boss Tavares wants to eliminate this geographic cluster risk. With the large SUVs and pick-ups from the FCA brands, he would secure a market share of twelve percent in North America in one fell swoop.
Conversely, FCA could also reduce its dependence on individual markets in combination with PSA. Finally, the Italians are currently generating two thirds of their sales in the United States. In addition, FCA exceeds the strict carbon dioxide (CO2) regulations with its fuel-guzzling jeeps and rams.
In an emergency, the company reaches into the bag of tricks: FCA pays the electric car manufacturer Tesla a three-digit million amount so that the emission-free Tesla– Electricity can be counted in a common pool and thus offset the high CO2 emissions of the FCA fleet on paper. But this is not a permanent solution.
FCA urgently needs a partner with the necessary electrical technology. This is where PSA comes in. The French have low-consumption engines on offer and work with just two vehicle platforms, on which all models are produced depending on demand – from diesel and petrol cars to plug-in hybrids and pure electricity.
FCA could put all small cars, sedans and compact SUVs on PSA platforms in the long term. The pick-ups and large sports off-road vehicles, on the other hand, should continue to need their own architectures. In total, PSA and FCA could reduce the confusion from a total of 13 platforms to three in Europe alone.
The merger of PSA and FCA should be sealed before Christmas. However, due to the high level of complexity of the transaction, it could take another year before the deal is actually closed.
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