Fiat Chrysler and Groupe PSA, the maker of Peugeot and Citroen cars, moved a step closer on Wednesday (30 October) to creating a new global auto giant as the industry battles ever fiercer competition and the costly shift from traditional to electric cars.
A source familiar with the matter told AFP that the board of PSA had approved the proposed multi-billion-euro tie-up with Italian-US Fiat Chrysler Automobiles (FCA) in a move that could create the world’s fourth largest automaker.
The deal still needs to be given the green light by FCA’s board, but the two sides could formally announce that they are in exclusive talks later on Thursday, the source said.
Earlier, both sides had said “there are ongoing discussions aimed at creating one of the world’s leading mobility groups”, but neither had offered any additional details.
A person with knowledge of the matter told AFP on Tuesday that a merger – which is not guaranteed – would create a firm valued at about €45 billion.
The merger plans come on the heels of a failed attempt earlier this year to combine Fiat Chrysler with Renault.
A combined FCA-PSA would produce the scale needed in an industry facing slowing demand, with 8.7 million vehicles sold per year and €184 billion in annual sales.
The board of the combined group would consist of six PSA members and five FCA members, a source close to the talks said.
Auto manufacturing globally – which accounts for 5.7% of global GDP and 8% of goods trade – shrank by 1.7% last year by volume of vehicles produced, according to the IMF.
If the deal goes through, PSA could gain access to the lucrative US market while fulfilling the long-held goal of late ex-FCA head Sergio Marchionne for a merger to survive escalating costs and competition.
The tie-up would make the new automaker the fourth largest in terms of sales behind Volkswagen, Renault-Nissan-Mitsubishi and Toyota, and would combine a host of well-known brands from Alfa Romeo, Jeep and Dodge to Citroen, Opel and Peugeot.
Investors cheered the news. FCA shares in Milan closed up 9% on Wednesday while PSA shares added 4% in Paris.
“We’re in a period where grey skies are gathering over the auto industry. When business is harder, competition is stronger and margins get thinner,” said Flavien Neuvy, director of the Cetelem Observatory, a research unit of BNP Paribas.
To offset the billions required to invest in advanced technologies, size is critical, Neuvy added.
Talks to merge FCA with Renault broke down in June, scuppered in part by resistance from the French government, which owns a stake in Renault – as it does PSA.
Analyst Michael Hewson at CMC Markets UK cautioned that political pressure could again be an obstacle, given France’s approximately 12% stake in PSA.
“It is hard not to see that this attempt by Fiat might well go the same way as the failed Renault attempt earlier this year,” Hewson said in a note. “Business and government always make uncomfortable bedfellows.”
France’s economy ministry said in a statement that the state would be “particularly vigilant” about jobs, corporate governance and preserving the industrial footprint when assessing any merger.
Italian vice economy minister, Antonio Misiani, said it was “vital to preserve (existing) sites in Italy.”
Under a merger, Carlos Tavares, the chief executive of Peugeot’s parent, Groupe PSA, would lead the company as CEO while John Elkann, FCA’s chairman, would be chairman, one source said.