Mega-merger
‘ No effect’ on Canadian plants as Fiat Chrysler, Peugeot merge in US$ 47 billion deal.
PSA Group and Fiat Chrysler Automobiles NV will combine to create the world’s fourth- biggest carmaker, as the manufacturers prepare to shoulder the costly investments in new technologies transforming the industry such as automation and electrification.
In the biggest auto tie- up since Daimler’s ill-fated purchase of Chrysler in 1998, the French and Italo- American carmakers will each own half of the enlarged business with combined annual sales of 8.7 million vehicles.
The all- stock transaction brings together two carmaking dynasties — the billionaire Agnelli clan of Italy and the Peugeots of France — and will forge a regional powerhouse to rival Germany’s Volkswagen AG with a market value of about US$ 47 billion, surpassing Ford Motor Co.
Executives promised not to close any plants in the merger even though the new company aims to extract 3.7 billion euros ($ 5.4 billion) in annual synergies related to platform and purchasing efficiencies. FCA currently operates two assembly plants in Ontario where it manufactures nearly one-quarter of all vehicles made in Canada.
“In the merger there will be no effect on production in Ontario,” FCA chief executive Mike Manley said on a call with reporters Wednesday.
Earlier this year, FCA announced plans to eliminate a third shift and 1,500 jobs at its Windsor, Ont., plant where 6,000 employees build the Chrysler Pacifica, Chrysler Pacifica Hybrid, Chrysler Voyager and Dodge Grand Caravan.
It has since extended the shift until the end of the first quarter in 2020, and will continue to review the feasibility of maintaining the shift, a spokesperson said in an email. It’s too early to comment on whether that extra capacity — if it opens up — could be used to build PSA vehicles in North America, the spokesperson said.
No cuts have been proposed at FCA’S Brampton, Ont., plant where 3,400 workers build the Chrysler 300, Dodge Charger and Dodge Challenger.
While the combined company said its manufacturing footprint will remain stable for now, the executives touted the synergies from sharing technologies and platforms across brands.
The new company will be run by PSA chief executive Carlos Tavares, with Fiat chairman John Elkann holding the same chair role.
The transaction will take as long as 15 months to complete, pending approvals by shareholders of both companies and by regulators, the carmakers estimated.
Like executives across the industry, Tavares and Elkann are responding to growing pressure to pool resources for product development, manufacturing and purchasing in the face of trade wars and an expensive shift toward electric and self-driving technology.
“The challenges of our industry are really, really significant,” Tavares, 61, said on the call with reporters. “The green deal, autonomous vehicles, connectivity and all those topics need significant resources, strengths, skills and expertise.”
“The technological revolution we are embracing requires a more innovative response than anything we have done before,” Elkann, 43, said in a letter to staff.
In an era when size is becoming ever more important, the deal will turn the two mid-sized carmakers into a global heavyweight, with a stable of popular brands and annual vehicle sales surpassing General Motors Co. The combination will give Peugeot- maker PSA a longsought presence in North America and should help Fiat gain ground in developing low-emission technology, where it’s lagged rivals.
Mark Nantais, president of the Canadian Vehicle Manufacturers’ Association, said the deal reflects where the auto industry is going and where it needs to go given how expensive it is to develop new technologies.
“That is so capital- intensive and there’s only so much money to go around,” Nantais said. “They have to look for partners, they have to look for synergies in order to basically be prepared for the future.”
As for future manufacturing decisions, Nantais expects the companies to choose markets where it can produce more profitably. While Canada has a skilled labour force, infrastructure and the benefit of the new NAFTA deal, it also has higher costs for inputs such as electricity, Nantais said.
“We’re still one of the highest- cost jurisdictions to produce,” he said.
When it comes to where to locate production and management, Tavares indicated the firm will stick to where the brands have roots and manage through regional headquarters.
“The brands carry the passion, the brands carry the history, the brands carry the emotions. This is why we considered that the brands will stay in their countries of origin,” he said. “Italian brands will stay in Italy, French brands will stay in France, American brands will stay in the U.S., and German brands will stay in Germany.”
Yet the new company will face many challenges. It will still be heavily reliant on Europe’s sluggish and saturated auto market, and poorly positioned in China, the world’s largest country for car sales.
The challenges will be manyfold, from improving Fiat’s struggling European operations to meeting tough rules on emissions that kick in next year in the region as well as an unprecedented policy known as the green deal demanding an even tougher clampdown on carbon. Tavares, known as a hard- nosed cost- cutter, will also have to navigate the political crosscurrents in France, Italy and the U. S., where the automakers have deep national roots.
He has tackled tough jobs before, leading the French carmaker back from the brink after taking over in 2014, and reviving the loss- making Opel brand after acquiring it from GM two years ago.
“We believe further synergies above the modest 3.7 billion euros announced will be required to justify the combination going forward, which Tavares’ track record makes likely,” Bloomberg Intelligence analyst Michael Dean said in a note.
The deal with Fiat Chrysler marks a reversal of fortune for the 61- year- old executive, who was forced into a bystander role earlier this year when Elkann approached Renault SA, PSA’S French rival. That merger fell apart in early June after Renault’s Japanese partner, Nissan Motor Co., declined to back it.
We’re still one of the highest-cost jurisdictions.