Commentary: FCA + Groupe PSA = Will This Deal Work?

The late Sergio Marchionne envisioned an automotive industry where cooperation is the key to both survival and success. He proved it when he brought Fiat S.p.A. and Chrysler together in the aftermath of the latter's round of bankruptcy. A year after his passing, we may see this come into fruition again.

The news flashed with a proposed merger between Fiat Chrysler Automobiles and Groupe PSA. A merger being worked out after both corporate governance boards agreed upon the initial terms of the tie-up. While we could see the formation of the world's fourth-largest automaker, both parties envision themselves as a larger "mobility company" investing towards the advancement of vehicle sharing, electrification, and autonomous driving technologies.

In comparison to a prior attempt by FCA and Renault to merge, this is a deal that could deepen the European automotive industry, with the hope of retaining jobs across the continent. They both offer competencies that complement each other while fulfilling the needs that are missing between the two entities.

In 2009, Fiat's investment in Chrysler was welcomed, because of the economy and the industry called for it. Marchionne paved the way to ensure that there is both autonomy and rationalization across both entities. The result was the final formation of Fiat Chrysler Automobiles. Though imperfect, it did create opportunities for all parts of the company to widen their net both in product and engineering.

Unlike Renault, Paris-based Groupe PSA is coming into this deal with several advantages that could benefit FCA. The company, led by CEO Carlos Tavares, offers a deeper presence across Europe. That presence now includes former General Motors entities Opel and Vauxhall and includes a German manufacturing base that gave the group more capacity across the continent.

In light of this news, there had been many opinions and speculations brought upon the announcement of the merger deal. However, I am very skeptical this time around. FCA has become more successful than DaimlerChrysler's "merger of equals." What would Groupe PSA add to this mix, other than what has been mentioned on here already?

Yes, FCA needs help in deepening the want of the industry towards self-driving technology and advanced electrification. They can also get a boost in vehicle sharing and other non-vehicle ownership opportunities that Groupe PSA has implemented worldwide. My concern is the kind of sacrifices that could happen across both entities when it comes to engineering and technology integration, including platform and propulsion rationalization.

One thing that has been addressed in the short term was the issue of vehicle production and the combined company's workforce. According to the press releases, we can be assured that jobs in Europe will be retained with no plant closures between the two entities. Hopefully, that also means that jobs will be secured elsewhere in the world where FCA and PSA have production facilities. Now that FCA is in talks with the United Auto Workers for the next labor agreement, issues and questions surrounding this merger will be brought up in hopes to secure production capacity in this country under the combined company.

The next item to be addressed will be what the combined company will look like once there is an initial round of corporate integration. This is where the speculation has gone into overdrive. I have read many times how Chrysler and Dodge may be sacrificed in this deal. This same fear fell upon the acquisition of General Motors' European assets – Opel and Vauxhall – by PSA where speculators had both brands cast off into oblivion and the Russelsheim plant in Germany shuttered for good. So far, PSA has been working on platform and propulsion systems integration with Opel and Vauxhall.

There is a history of integration at Groupe PSA that did result in the closure of brands and assembly facilities. Remember when they purchased Chrysler's European operations? They rebadged those models as Talbots, chucked the brand and its products in the mid-1980s, started producing Peugeots in Great Britain, then closed the plant for good in 2004.

Could this happen to Opel and Vauxhall? Chrysler and Dodge?

While we speculate on the future of those four brands, we could see opportunities for the remaining brands between the two entities. Groupe PSA now has access to two desirable nameplates – Alfa Romeo and Maserati. This will fulfill PSA's want of entry into the upper levels of the automobile market. It also signals the reunion of Citroen and Maserati – though one would hope that Maserati will maintain its current course without any French interference this time around.

In the past, the big prize of any merger with Chrysler was Jeep. FCA leveraged the brand into a global entity that now equals Fiat in Europe. Under a combined FCA-PSA entity, Jeep could continue to go from strength to strength, as long as PSA respects its position as a global brand with massive equity.

However, if you want to see this merged company in action, a visit to the Sevel plant in Italy is in order. Prior to this agreement, five nameplates are affixed to their top commercial vehicle sold in Europe – the Fiat Ducato van. This is a van that not only wears the Fiat badge, but it is sold in Peugeot, Citroen, Opel, and Vauxhall versions. Plus, this same van is produced worldwide, including Mexico, where the van is sold as the Ram ProMaster.

In the commercial vehicle business, a single vehicle wearing six different nameplates works to a company's advantage. However, this might not fly in the passenger vehicle business. Therefore, FCA and PSA will have to start the work of a wider platform and propulsion rationalization plan in the next few years after a full agreement has been made on the deal. This plan should also address electrification, autonomous drive vehicles, and the integration of technologies across the combined company.

While Europe seems to be sorted out, one should address the combined company's future in North America. PSA also announced that it will reintroduce the Peugeot brand in the USA and Canada in 2026. If they stick to that plan, this gives FCA and PSA to sort out their North American operations. The easy part should be simple: PSA would have to pull plans to establish a headquarters in the Atlanta area and simply utilize FCA's campus in Auburn Hills, Michigan as their new base of combined operations on this side of the Atlantic.

There is so much ground to cover without going into full speculation mode. Still, I am nervous that this deal may hit a snag and one of the entities could back out killing the merger altogether. I am also nervous that we could see failure if the merger goes forward and it becomes a bad deal across the board in the near and long term.

If this deal goes through and becomes reality, one would hope that this merger between FCA and Groupe PSA will prove Marchionne right in his call that the future of the automotive industry will see more collaboration, cooperation, and, maybe, consolidation. But, is this deal exactly what the late head of FCA meant? If it is, then one would hope for the best.

All photos by Randy Stern

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