Fiat Chrysler and PSA confirm exploring potential tie-up

MILAN: Fiat Chrysler Automobiles NV and French carmaker PSA Group said they’re in talks about a possible combination, in a potential deal that would reshape the global auto industry and create a European powerhouse to rival Volkswagen AG.

“There are ongoing discussions aimed at creating one of the world’s leading mobility groups,” Fiat said in a statement yesterday, confirming media reports. PSA issued a similar statement.

A merger of the Italian-american automaker and PSA, the No. 2 for car sales in Europe, would create a global company with a current stock-market value of Us$47bil – about the same size as Japan’s Honda Motor Co.

The talks come several months after Fiat Chrysler and PSA explored a partnership on pooling investment to build cars in Europe, and following the collapse of negotiations between Fiat Chrysler and French competitor Renault SA in June.

The French government would play a key role in any deal because France is one of the biggest owners of PSA, whose brands include Peugeot, Opel and Citroen.

Analysts greeted word of a possible deal warmly. “In our view the combination of FCA and PSA has more logic than the previously attempted FCA-RNO deal and has a far greater chance of success,” Max Warburton, a Bernstein analyst, wrote in a note to clients.

Automakers face tremendous pressure to combine forces and share costs from platform development to manufacturing and purchasing as they battle through trade wars, a global slowdown and an expensive shift toward electrification and autonomous driving. Volkswagen in July said it will work with Ford Motor Co on electric and self-driving car technology, while Toyota Motor Corp is strengthening ties with partners such as Subaru Corp and China’s BYD Co.

In Europe, PSA and Fiat Chrysler face the additional burden of new emissions regulations that will force the industry to meet stringent fleet requirements next year.

“If completed, we believe this should ignite more rational industry behaviour around allocation of capital ,and this particular merger makes materially more sense than a potential Fca-renault merger,” said Arndt Ellinghorst, an Evercore analyst. He said it’s an opportunity to achieve “gross synergies”

€7bil above (Us$7.8bil) by 2023 due to overlapping businesses in Europe, Latin America and China.

The companies’ Chinese businesses have been trailing competition and it’s unlikely that a merger would quickly reignite their revenue growth in the world’s biggest car market. China’s Dongfeng Motor Corp, which holds about 12% of PSA, could also have a say on the deal.