Posted Dec 18 2019 at 6:07 pm
Economies of scale, sharing of technologies, geographic complementarity… By joining forces , PSA and Fiat Chrysler will undoubtedly be better equipped to face the tormented years ahead in the automotive industry. Carlos Tavares, PSA CEO called to lead the future together, will nevertheless very serious challenges .
· Factories overheating, others underloading
The two groups reaffirm the commitment made at the end of October: the 3.7 billion euros in annual synergies that the merger must generate must be achieved without closing a factory. But Carlos Tavares, who defines himself as a “performance psychopath”, will probably not accommodate the low activity rate of several European factories of Fiat Chrysler.
According to the specialized firm Inovev, the Kragujevac plant in Serbia only runs at 40% of its capacity, just like those in Modena or Cassino in Italy. As for that of Mirafiori, historic cradle of Fiat, the utilization rate would not exceed 10%! The utilization rate of PSA’s European factories would be 80% on average, 20 points higher than at Fiat. The future boss will have to remedy it. Sign that the subject worries employees, the CFE-CGC of PSA, followed by the CFDT, asked Wednesday in a statement that the commitment not to close the factory be formalized in a union-management agreement.
Stopped sales in China
By merging, PSA and Fiat Chrysler will give birth to a group with strong positions in Europe, the United States and Latin America. But the positions of the new group will remain anecdotal in China: the two of them, manufacturers make barely 1% of sales. A position that the future group will not be able to settle for, given the size of this market (it is now the first in the world) and its potential. “We have definitely not achieved the results we hoped for,” Carlos Tavares agreed during a conference call Wednesday.
But he and Mike Manley, the boss of Fiat, will have to wait until the finalization of the operation, announced in more than a year, to reflect on the “diagnosis” and “the effective way” to operate in China. By then, PSA will already have to complete the restructuring plan decided this summer to stem the heavy losses observed on this market (300 million euros last year).
· An over-supplied portfolio of brands
Peugeot, Citroën, DS, Opel and Vauxhall on the PSA side, Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Jeep, Lancia, Maserati and Ram at FCA. In total, the future set will have no less than 14 brands in the portfolio. Are they all intended to last? For the time being, Carlos Tavares wants to be reassuring. This is an “important” number, had he agreed in early November , and it will be a question of “managing their complementarity well”. However, “they all have their history and all their strength”. What he confirmed Wednesday by highlighting the “deep historical roots” of European brands. But with marketing budgets that are not scalable, the group will undoubtedly have to make choices.