MILAN/PARIS • Fiat Chrysler Automobiles (FCA) and Peugeot owner PSA are in talks to combine and create a US$50 billion (S$68 billion) giant better placed to tackle a host of costly technological and regulatory challenges facing the auto industry.
The move comes less than five months after merger talks between FCA and French carmaker Renault foundered, with the United States-Italian group blaming intervention from French government officials.
PSA had revenue of €74 billion (S$112 billion) last year when it sold 3.9 million vehicles. It employed 211,000 people. Its brands include Peugeot, Citroen, Opel and Vauxhall. FCA generated net revenue of €110 billion last year and shipped 4.8 million vehicles. Its workforce totalled 199,000. Its brands include Fiat, Chrysler, Alfa Romeo, Jeep, Ram, Lancia and Maserati.
The car industry is facing a downturn as sales in mature markets stagnate and growth cools in countries such as China, which had been helping to sustain expansion.
Last week, Ford became the latest major carmaker to issue a profit warning. The industry is also having to reinvent itself in the light of the Volkswagen "Dieselgate" emissions scandal and broader environmental concerns.
European carmakers have waited until the last minute to try to meet ambitious European Union (EU) emissions targets and face billions in fines if they fail to comply.
The EU has imposed a 40 per cent cut in emissions between 2007 and 2021. The main advantage of a merger for Peugeot would be FCA's highly profitable businesses in North America, with its Ram trucks and Jeep brand. FCA derives 66 per cent of its revenue from North America compared with only 5.7 per cent for PSA, Refinitiv Eikon data shows.
Europe remains the main revenue driver for PSA. FCA lacks adequate green technology and would benefit from PSA's expertise, which has already spawned the Peugeot e-208 and the Opel Corsa-e mini.
In some ways, Renault may be a more suitable partner for FCA as it offered a larger exposure to Asia through its Nissan partnership. It is also an electric-car pioneer with relatively fuel-efficient engine technologies and a strong presence in emerging markets.
PSA is a more stable potential partner than French rival Renault, which has been reeling from the loss of leader Carlos Ghosn. He is facing trial in Japan on charges of financial misconduct which he denies.
The loss of Mr Ghosn laid bare tensions between Renault and its alliance partner Nissan. As the downturn deepens and emissions targets bite, finally securing a deal is given greater urgency.
The ownership complexities that helped to scupper the FCA-Renault deal could also complicate this combination. The French government has a 12 per cent shareholding in PSA while the Peugeot family and the Chinese state, via Dongfeng Group, have similar holdings.
In August, PSA's shares briefly rallied amid speculation that Dongfeng was considering selling all or part of its stake. PSA shares were worth as little as €9 in 2014 when Dongfeng bought the stake and soared to as high as €27 on Wednesday.
Some analysts say the Chinese presence might trigger doubts in the US over a potential merger, as trade tensions between Washington and Beijing remain high. The Italian government and unions are keen to avoid major job losses in Italy.
Some commentators have speculated that details of the talks have been leaked to try to bring Renault back to the negotiating table with FCA. However, Renault's focus is believed to be on fixing its alliance with Nissan following management changes at the top of both companies.
PSA chief executive officer Carlos Tavares, a Portuguese national, worked for both Renault and Nissan before taking the reins at PSA five years ago. He is credited with rescuing the group from near-bankruptcy and expanded it through the acquisition of Opel two years ago.
New York-born John Elkann has been Fiat chairman since 2010, maintaining a family link back to the Italian company founded by his great-great-grandfather Giovanni Agnelli, which built its first car in 1899.
REUTERS
