PSA-FCA merger will be positive for Ontario auto industry: Analysts
New company Stellantis will become fourth-largest automaker in the world
The finalization of the Peugeot SA and Fiat Chrysler merger on Saturday, creating the world's fourth-largest automaker, is being hailed by industry analysts not only as a positive development for the domestic auto sector but also a necessary one.
The new firm will be called Stellantis with a value of about US$50 billion and PRE-COVID-19 global sales of 8.7 million vehicles annually.
Stellantis will have 400,000 employees worldwide.
“It's really the culmination of the vision of (PSA CEO) Carlos Tavares and (former FCA CEO) Sergio Marchionne that if you're going to compete globally, consolidation is necessary,” said Automotive Parts Manufacturers Association president Flavio Volpe.
He added: “In these affairs there's usually a dominant partner, but this one is unique in they're equal sized partners. I think it's a complementary merger.
“I think it will be mostly positives for the industry in Ontario.”
Unifor national president Jerry Dias said he shares that optimistic vision.
He has no concerns over the merger's impact on the future of the Brampton production plant or the promises secured in last fall's contract for the introduction of a second vehicle and electrified production at Windsor Assembly Plant.
“I don't see it as that big a deal (to Canadian operations),” Dias said.
“The Brampton plant is printing money, so they won't mess with that.
“The Windsor plant, the FCA commitments made in 2020 to invest $1.5 billion in battery electric vehicles, are in line with what the corporation needs to do in North America, Europe and Asia.”
Dias added the merger has been in the works for a year, so any contract commitments made last fall were done with the blessing of both the PSA and FCA boards.
What further bolsters Dias's confidence about the future is that FCA'S North American operations are the most profitable component of the merger.
Analysts called FCA'S Jeep and Ram divisions the stars in the merger.
“If 70 per cent of the company's profit is from North America would you mess with that?” Dias said.
“There won't be any plant closures in North America. FCA is actually in need of more capacity.
“Peugeot has excess capacity. There's no fat in the FCA system.”
Dias also doesn't expect to see much of either partner's product crossing the Atlantic to find new markets.
Instead, he sees the merger's motivation more in scaling up to compete globally and trying to crack the Asian market where both PSA and FCA have struggled.
“Both are trying to get into the Asian market and China, and now they have the capacity to do it,” Dias said.
Michael Robinet, executive director of IHS Markit (Michigan), sees little downside for North American plants in the merger.
“Underneath the umbrella there will be changes,” Robinet said. “Some may be negative, but overall those changes will be positive. If there's anything negative, it'll be Europe, not in North America.
“This is not a play for North America by Peugeot.”
Robinet expects Stellantis to begin acting rapidly, but in ways not obvious to consumers.
The focus will be on wringing out the savings in sharing technologies, supply chain logistics, procurement and platform sharing.
Those savings can be plowed into research and development, especially in the areas of electrification and tailpipe emissions. “I think the sharing of technology could happen fairly quickly,” Robinet said.
“This is a fast-moving business, and if you aren't moving forward you're getting passed. That's why I think another benefit to this merger is improving the speed to market for new products.”
Robinet said the combined strength of the company will help Stellantis make up ground in the race to green and autonomous vehicles.
“It's not so much innovation by 2024, the new market is like going back to the 1950s when big design changes were more frequent,” Robinet said.
However, Robinet doesn't expect to see new combined models popping up for a few years yet.
The automotive development pipeline tends to run on five-year cycles.
“Anything new in development is going to be at least 2023 or more likely after 2024,” Robinet said.
“I think you'll see more in shared platforms and new models eventually in the long run, not so much in the short term.”
Desrosiers Automotive Consultants founder Dennis Desrosiers doesn't expect to see any brands disappearing from Stellantis's portfolio or the sudden appearance of PSA products in North America in the near future either.
The new company will have 14 brands after the merger, creating speculation that smaller volume names like Chrysler might disappear.
“Not in Canada, I don't see it,” Desrosiers said of the Chrysler brand getting axed. “A lot of the consolidation is going to be on the engineering and technology side.”
Volpe also pointed out the Chrysler and Dodge brands don't carry negative baggage with consumers and remain competitive.
The Dodge muscle cars, the Challenger and Charger, remain among the top sellers in their categories. The Challenger was the top-selling muscle car in the U.S. in the fourth quarter of 2020.
FCA'S minivan lineup also retains the lion's share of the overall market.
“Chrysler and Dodge are resilient brands,” Volpe said.
“The minivan market has shrunk to the point, when people think of minivans, they think of the product produced in Windsor.
“These are strong enough segments that I'm not worried about them disappearing.”
Volpe said having the fourth-largest automaker in Ontario's backyard will provide opportunities and challenges for the province's supply chain.
PSA will come with its own list of suppliers and Stellantis will want to whittle that list down to a manageable and dependable number.
“You better be ready to go,” said Volpe, noting domestic firms doing their homework already have identified their competition.
“If you don't do this right, you have no chance.”
I think you'll see more in shared platforms and new models eventually in the long run, not so much in the short term.