Cleveland, Ohio – With blessings from unions and major shareholders, leaders at Fiat Chrysler Automobiles (FCA) and Peugeot Citroen (Groupe PSA) formally signed their merger agreement, kicking off what could be a yearlong process of gaining regulatory clearances to make the world’s 4th largest automaker.
Groupe PSA Chairman Carlos Tavares said, “Our merger is a huge opportunity to take a stronger position in the auto industry as we seek to master the transition to a world of clean, safe, and sustainable mobility.”
FCA CEO Mike Manley said, “This is a union of two companies with incredible brands and a skilled and dedicated workforce. Both have faced the toughest of times and have emerged as agile, smart, formidable competitors.”
The companies are describing the tie-up as a 50/50 merger, and the leadership structure following the deal reflects that. Tavares will be the combined company’s CEO, but the chairman job will go to FCA Chairman John Elkann, great-great grandson of Fiat founder Giovanni Agnelli.
The companies estimate the merger will cut future costs by about $4.1 billion per year without closing plants. Geographically, PSA gets the bulk of its sales in Europe, while FCA is strongest in North America. The savings would come from sharing technology and vehicle designs and using the larger scale of the company to negotiate lower prices with suppliers.
The companies have pledged to not close plants, a critical factor in winning union support in North American and Europe.
“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 UAW Vice President Cindy 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.”
The combined company will sell about 8.7 million vehicles per year for about $189 billion, earning $12.2 billion in profit, based on 2018 numbers. Executives estimate that 46% of future revenue should come from Europe and 43% from North America.
Company leaders say cost savings will give FCA-PSA the resources needed to develop electric and autonomous vehicles (EVs and AVs) and to develop new traditional vehicles.
As part of the deal, PSA will spin off supplier Faurecia, giving those shares to its existing shareholders, and FCA will do the same for robot maker Comau.
While the French government, a major shareholder in PSA, has signaled support, there are regulatory hurdles to clear, the biggest being Chinese automaker Dongfeng’s 12% stake in PSA. Dongfeng traces its roots to Mao Zedong’s rule in China, and as a state-owned enterprise, it might run afoul of U.S. technology transfer rules.
Shareholders of both companies also must approve the deal, but that step is a formality. The founding families of PSA and FCA still control most voting stock of both companies, so as long as they approve the deal, it should pass.
About the author: Robert Schoenberger is the editor of Today's Motor Vehicles and a contributor to Today's Medical Developments and Aerospace Manufacturing and Design. He has written about the automotive industry for more than 19 years at The Plain Dealer in Cleveland, Ohio; The Courier-Journal in Louisville, Kentucky; and The Clarion-Ledger in Jackson, Mississippi.