Fiat Chrysler, Peugeot in tie-up talks

Fiat Chrysler and Peugeot are discussing a possible tie-up.

Giulio Piovaccari and Sudip Kar-Gupta reported the news for Reuters:

Fiat Chrysler (FCHA.MI) and Peugeot owner PSA (PEUP.PA) are in talks over a potential tie-up that could create a $50 billion giant better placed to tackle a host of costly technological and regulatory challenges facing the global auto industry.

The two groups said in separate statements on Wednesday they were holding discussions aimed at creating one of the world’s leading auto makers, after a source familiar with the matter said on Tuesday talks were taking place..

After ditching a proposed merger with Renault (RENA.PA) in June, Fiat Chrysler (FCA) Chairman John Elkann confirmed the group’s bid to pursue an alternative alliance as car makers face huge investments for electrification, emission reduction and autonomous driving technologies.

AP’s Colleen Barry and Angela Charlton cited a Fiat Chrysler statement:

The statement said the discussions were ongoing “aimed at creating one of the world’s leading mobility groups,” but didn’t specify whether the goal was a full merger or a looser alliance. No further details were given. PSA Peugeot put out a similar statement.

FCA shares shot up nearly 9% on the news to 12.75 euros ($14.70) in Milan trading.

Fiat Chrysler has long been looking for a partner to help shoulder investments in the capital-heavy industry, under the outlook that failure to consolidate would inevitably lead some companies to fail.

Talks this year with another French carmaker, Renault, to create what would have been the third-largest carmaker broke down over French government concerns about the role of the Japanese partner Nissan and criticisms from Renault’s leading union.

Like Renault, PSA is partly owned by the French government, which will put a priority on protecting jobs in French plants.

Peugeot family group, China’s Dongfeng Motors, and French state investment bank BPI France each have 12.23% of capital and 19.5% voting rights.

CNN’s Chris Isidore noted:

Global automakers are facing a period of declining sales, because of a slowdown in China, the largest market for new car sales. Chinese sales dropped about 11% in the most recent period, because of a weakening economy exacerbated by trade tensions with the United States.

Automakers are also facing pressure to develop expensive electric- and self-driving vehicles, a research and development effort that will cost billions of dollars but may not produce profits for years. Fiat Chrysler is trailing many of its competitors in those R&D efforts.

Fiat Chrysler was created out of a cross-border merger. Fiat started its purchase of Chrysler out of bankruptcy 10 years ago, a deal that was completed five years later. But the combined automaker is significantly smaller than many of its rivals, putting it at a disadvantage in purchasing muscle as well as spreading out the cost of research and development over a larger number of vehicles. It has been looking for another deal to give it the heft it needs to be competitive.

Sergio Marchionne, the late CEO who brought the two companies together, was very public about his desire for a deal with General Motors, although he was rebuffed. He also talked publicly about his interest in a combination with a tech company looking at getting into autos, such as Google (GOOG) or Apple (AAPL).