Fiat Chrysler-Peugeot merger could bring more clean vehicles
DETROIT — Fiat Chrysler and Peugeot agreed Wednesday to merge into a single company that will become the world’s fourth-largest automaker, a giant that could bring consumers a wider variety of cleaner vehicles at a faster pace, including more powered by electricity.
The boards of the two companies signed the deal to achieve what neither was good at alone: conquering the challenges of stricter emission rules and navigating the transition to battery-powered and autonomous vehicles.
The new company, which doesn't yet have a name, will be led by Peugeot's cost-cutting CEO Carlos Tavares. Fiat Chrysler CEO Mike Manley will stay on, though it was unclear in what capacity and for how long.
For consumers, the agreement will give Fiat Chrysler access to “multi-energy platforms” already developed by Peugeot, including electric vehicles, Manley said.
“That obviously increases choice and improves overall fleet performance from a CO2 perspective,” he said. “In any competitive environment, you win because you offer your customers great value.”
But don't expect to see Peugeot sedans in the U.S. anytime soon. Tavares said the combined company's brands would stay where they originated.
The deal, long sought by both corporations, is expected to close within 15 months, although it will have to clear anti-trust and other regulatory hurdles.
On a series of conference calls, Tavares and Manley talked about obtaining $4.1 billion (3.7 billion euros) in annual savings, largely from combining research and platforms, the underpinnings on which vehicles are built. The companies said they do not expect any factory closures, but administrative cuts that could cost jobs will be considered. Added vehicles should be able to fill up underutilized plants, they said.
By themselves, the companies were relatively weak in new technology, such as electric vehicles, with Peugeot ahead of Fiat Chrysler. But together, they will be able to turn out more plug-in hybrids and electric vehicles.
“In going this route, they should be more affordable,” said Stephanie Brinley, principal analyst for IHS Markit. “Consumers should be able to get it faster, and they should be able to get it at a lower cost.”
Peugeot has strong small and midsize cars, markets that Fiat Chrysler has almost abandoned in the U.S. because of a huge consumer shift toward SUVs and trucks. But Brinley said Fiat Chrysler could use the Peugeot underpinnings to build more small and midsize SUVs at a faster pace for sale in the U.S.
Meanwhile, Peugeot would get Fiat Chrysler's expertise in pickup trucks and commercial vehicles and could perhaps sell some of the popular Jeep brand vehicles in Europe and elsewhere.
Tavares said both companies' brands have a strong following, especially in their home countries, that could be used as an advantage. “When there is passion and emotion, there is room to work on the marketing communications,” he said.
The merger will not be the last in a capital-intensive industry that faces challenges of new technologies, Brinley said. Although she expects more combinations, she said competitors such as Ford Motor Co. have been able to get economies of scale and share technology costs through partnerships that are short of a full-blown combination.
Ford, for instance, is partnering with Volkswagen, while the much smaller Mazda of Japan is joining with Toyota.
“I think that it's not unrealistic that we will see another merger or acquisition,” Brinley said. “But strategic alliances can be just as effective or more. I think we’ll see both happening.”
The deal, which was first unveiled in October, will create a company with revenues of nearly 170 billion euros (nearly $190 billion) that produces 8.7 million cars a year — just behind Volkswagen, the Renault-Nissan alliance and Toyota.
The new company will be legally based in the Netherlands and traded in Paris, Milan and New York. It will start with a strong base in Europe, where Peugeot is the second-largest carmaker. Fiat makes most of its profits in North America and has a strong presence in Latin America. It will be looking to strengthen its position in China, where both companies lag.
"That is part of the opportunities,'' Tavares said. ‘’We are not happy with our performance there. We think we should be doing better in China.''
Fiat Chrysler has been looking for an industrial partner in recent years. A previous deal with French rival Renault last spring fell apart over French government concerns about the role of Renault’s Japanese partner, Nissan.
Both the French government and unions backed the new deal from the beginning, Tavares said.