Fiat Chrysler, Peugeot tie the knot

Fiat Chrysler and Peugeot struck a $50-billion merger of equals that will see a new supergiant in the carmaking industry.

Gilles Guillaume and Giulio Piovaccari reported the news for Reuters:

Fiat Chrysler (FCHA.MI) and Peugeot maker PSA (PEUP.PA) have reached a binding agreement over their roughly $50 billion merger that will reshape the global car industry.

France’s PSA and Italian-American Fiat Chrysler (FCA), which are yet to decide on a name for their new company, will now start work on delivering their pledge to cut costs by 3.7 billion euros ($4.1 billion) a year without closing factories.

That will be all the harder with politicians and strong labour unions in both France and Italy worried about job losses at a combined business that will employ around 400,000 people.

“The merged group will have to make massive savings and probably also close plants, even if the CEOs’ choice of words is different,” said NordLB autos analyst Frank Schwope after the binding agreement was announced on Wednesday.

French finance minister Bruno Le Maire, meanwhile, welcomed the move to bring together Europe’s second and third biggest carmakers, while adding the French government – a key shareholder in PSA – would remain vigilant on matters including where “decision centres” are located within the new group.

The AP’s Colleen Barry and Angela Charlton wrote:

The companies said in a joint statement the new group will be led by PSA’s cost-cutting CEO Carlo Tavares, with Fiat Chrysler’s chairman John Elkann as chairman of the merged company. Fiat Chrysler CEO Mike Manley will stay on, but it was not announced in what capacity.

No name for the new company has been decided, executives said in a conference call, but both Tavares and Manley insisted that it was not a “touchy subject.”

The deal, which was unveiled in October, was announced as a 50-50 merger, but PSA has one extra seat at the board and Tavares at the helm, giving the French carmaker the upper hand in daily management.

The executives said they expect the deal to take 12-15 months to close. It will give birth to a group with revenues of nearly 170 billion euros and producing 8.7 million cars a year — just behind Toyota, Volkswagen and the Renault-Nissan alliance.

The merger is expected to create 3.7 billion euros in annual savings, which will be invested in “the new era of sustainable mobility″ and to meet strict new emissions regulations, particularly in Europe.

″’The merged entity will maneuver with speed and efficiency in an automotive industry undergoing rapid and fundamental changes,″ the carmakers said in the joint statement.

New technologies includes electrified engines, autonomous driving and connectivity, part of what Tavares described as ’’the transition to a world of clean, safe and sustainable mobility.″

No plants will be closed under the deal, the companies said. Savings will be achieved by sharing investments in vehicle platforms, engines and new technology, while leveraging scale on purchasing.

Eric D. Lawrence from Detroit Free Press noted:

FCA Chairman John Elkann will be chairman of the new company, leading an 11-member board. The company will be listed on stock exchanges in Paris, Milan and New York. The current agreement is described as binding, although it’s not clear what would happen if the deal fails to close.

The merged company should see annual vehicle sales of 8.7 million, revenues of $189.54 billion (170 billion euro), $12.26 billion (11 billion euro) in recurring operating profit and an operating profit margin of more than 6.6% based on 2018 results, the companies said. 

FCA and PSA Groupe have promoted the deal as a cost-saving venture, and the release said that the projected annual $4.1 billion (3.7 billion euro) savings will be gained in large part by savings on vehicle platforms and purchasing scale as well as in areas such as marketing, logistics and information technology. Achieving those savings are projected at a one-time cost of $3.1 billion (2.8 billion euro).

Cindy Estrada, the UAW vice president who led recent contract negotiations with FCA for the union, offered a relatively optimistic statement.

“There are many challenges in the auto industry today and we hope that this will bring opportunities for growth that will benefit UAW members and our communities,” said Estrada, director of the UAW FCA Department. “We know that FCA North America production is highly profitable and there is minimal product overlap at this time. We look forward to hearing more details in the future and working together to continue to make FCA a success and bring about job security for our members.”