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PSA, FCA sign on the dotted line
Merger between PSA and FCA confirmed, formation of mega-group to take 12-15 months
19 Dec 2019
GROUPE PSA and Fiat Chrysler Automobiles have signed on the dotted line to merge, resulting in the formation of a 14-brand mega group that will be the world’s fourth-largest automaker by volume and the third largest by revenue.
Provided all necessary approvals are obtained, the 50:50 merger is expected to take 12-15 months to complete, become cashflow positive in its first year and achieve €3.7 billion ($A6b) worth of increased operating efficiency within the first four years.
It is estimated that 40 per cent of these savings will come from platform and technology sharing, another 40 per cent from economies of scale in purchasing and the rest in marketing, IT, logistics and administration. The one-off cost of implementing these changes is estimated at €2.8b.
The joint announcement says the merger will provide “much greater geographic balance” with 46 per cent of revenue from the European market and 43 per cent from North America, as well as “a balanced and profitable global presence with a highly complementary and iconic brand portfolio covering all key vehicle segments”.
“The combination will bring the opportunity for the new company to reshape the strategy in other regions,” says the announcement.
Combining annual vehicle sales of Citroen, DS, Opel, Peugeot and Vauxhall from the PSA Group with FCA’s Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Jeep, Lancia, Maserati and Ram adds up to 8.7 million units.
Based on 2018 financial results, the merged group could achieve a 6.6 per cent operating profit margin that generates €11b of operating profit from €170b of annual revenue.
The new group will be headquartered in the Netherlands and chaired by John Elkann, the current FCA chairman and heir to the Agnelli dynasty that founded Fiat in 1899.
Groupe PSA chief executive Carlos Tavares will maintain his job title in the as-yet unnamed conglomerate.
No position has been announced for FCA chief executive Mike Manley, who stepped into the role after Sergio Marchionne died unexpectedly in July last year.
He does, however, get a mention in the merger announcement alongside Mr Tavares that describes the pair as having “a strong track record in successfully turning around companies and combining OEMs with diverse cultures”.
“This experience will support the speed of execution of the merger, underpinned by the companies’ strong recent performances and already robust balance sheets,” says the announcement.
“The merged entity will manoeuvre with speed and efficiency in an automotive industry undergoing rapid and fundamental changes.”
According to the announcement, “more than two thirds” of the merged group’s production volume “will be concentrated on two platforms”.
It says the small and compact/mid-size platforms will each form the basis of around three million vehicles per year.
With PSA’s absorption of General Motors’ European Opel and Vauxhall brands in late 2017 as a guide, the quick migration of FCA models to PSA platforms is likely.
Automotive News reports that the majority of models will migrate to PSA’s latest CMP (common modular platform) and EMP2 (efficient modular platform 2) architectures, both of which are compatible with petrol, diesel and electrified drivetrains.
This will enable FCA brands to quickly fall into line under PSA’s stated goal of 100 per cent model electrification by 2025.
At the same time, PSA’s exit from the micro car segment could call time on Fiat’s 500 and Panda micro cars, which share their FCA Mini platform with Lancia’s only remaining model, the Ypsilon. However, Fiat will reportedly proceed with the all-electric 500e that is close to market-readiness.
When the current Citroen C1 and Peugeot 108 model lifecycle ends around 2021, Automotive News reports that PSA will walk away from the Czech joint-venture manufacturing facility it shares with Toyota, which in Europe sells a version of the same car badged as an Aygo.
Fiat’s Tipo small hatch runs on the FCA Small Wide platform shared with the 500X crossover and 500L wagon, as well as the Jeep Renegade and Compass small SUVs. Versions of the Alfa Romeo Giulietta’s Compact platform spawned the Dodge Dart and Chrysler 200 sedan, Jeep Cherokee medium SUV and Chrysler Pacifica people-mover.
Alfa Romeo recently ditched the ageing MiTo light hatch, 4C sports car and cancelled in-development projects to produce a BMW 4 Series-rivalling coupe based on the Giulia and large SUV to sit above the Stelvio. The Giulietta small hatch that launched in 2010 will also be dropped.
New compact and small SUVs will join the Alfa line-up, the former previewed by the Tonale concept that was unveiled at Geneva motor show in March.
As happened with the Vauxhall/Opel Corsa light hatch that had design sign-off on a General Motors platform but was moved to PSA underpinnings, the production Tonale could end up being shoehorned onto the EMP2 architecture used on models such as the Peugeot 3008.
Alfa’s Giulia and Stelvio run on a separate ‘Giorgio’ RWD/AWD platform that is expected to be shared with Maserati, while the Fiat/Abarth 124 Spyder is built in Japan alongside the Mazda MX-5 on which it is based.
Ram trucks and the Jeep Wrangler/Gladiator all use proprietary body-on-frame platforms, with PSA currently working on a one-tonne ute with Chinese joint-venture partner Dongfeng.
Meanwhile, the Jeep Grand Cherokee, Chrysler 300, Dodge Durango, Dodge Charger and Dodge Challenger all use legacy platforms from the DaimlerChrysler tie-up that dissolved in 2007.
Fiat sells rebadged Renault Trafic vans under the Talento nameplate, a deal that is likely to go the same was as the Vauxhall/Opel Vivaro that switched this year to models based on the Citroen Dispatch and Peugeot Expert.
The Fiat Fiorino compact van and its Qubo passenger version – sold in the Americas as Ram Rapid – are already badge-engineered PSA models, as is the next-size-up Doblo that was rebadged as the Vauxhall/Opel Combo but now rides on PSA Group platform. The Ducato/Ram Promaster has long been shared with PSA.
Shares of the newly formed group will be listed on stock exchanges in Paris, Milan and New York and changes to the existing stakes of major shareholders including the Agnelli and Peugeot families, Dongfeng and the Bpifrance investment bank will be subject to restrictions.
All parties have also “each irrevocably committed to vote in favour of the transaction at the shareholders’ meetings of FCA and Groupe PSA”.
PSA will distribute its 46 per cent stake in French automotive supplier Faurecia among shareholders and FCA will conclude the spinoff of Italian industrial automation and robotics firm Comau.
Mr Tavares described the merger as “a huge opportunity to take a stronger position in the auto industry as we seek to master the transition to a world of clean, safe and sustainable mobility and to provide our customers with world-class products, technology and services”.
“I have every confidence that with their immense talent and their collaborative mindset, our teams will succeed in delivering maximized performance with vigour and enthusiasm.”
Mr Manley concurred: “This is a union of two companies with incredible brands and a skilled and dedicated workforce.
“Both have faced the toughest of times and have emerged as agile, smart, formidable competitors. Our people share a common trait - they see challenges as opportunities to be embraced and the path to making us better at what we do.”
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