Fiat Chrysler Automobiles joins hands with Peugeot owner PSA Group

The mega merger will pave the way for both companies to increase their global footprint.
Fiat Chrysler and PSA Peugeot merger.
Fiat Chrysler and PSA Peugeot merger.

American-Italian carmaker Fiat Chrysler Automobiles (FCA) and France’s PSA Group on Thursday approved merger of their operations to create a new group which could take on more nimble rivals in an ever-challenging market.  

The new entity will become the world’s fourth-largest global automobile maker with a capacity to make 8.7 million vehicles, with combined revenues of nearly 170 billion euros. The merger is expected to produce synergies which would make the new giant corporation a leaner, meaner competitor. It is projected that 80 per cent of the synergies would be achieved after 4 years.

The total one-time cost of achieving the synergies is estimated at 2.8 billion euros.  “In a rapidly changing environment, with new challenges in connected, electrified, shared and autonomous mobility, the combined entity would leverage its strong global R&D footprint and ecosystem to foster innovation and meet these challenges with speed and capital efficiency,” FCA said in a statement on Thursday.

Analysts said that the merger reflects the pressure imposed on automotive players by the undergoing transformation known as CASE - Connected, Autonomous, Shared and Electric.

“The substantial investments it requires are bringing carmakers together at different levels and models of cooperation. This merger is another reflection of a growing trend,” Pedro Pacheco, Senior Research Director (Germany) in Gartner’s CIO Research Group said. 

He added that for PSA and FCA individually, it’s a way to expand their volumes, global footprint and achieve greater economies of scale. "At present, only three passenger vehicle makers — Volkswagen, Toyota Motor Corp and Renault  Nissan Alliance — has a bigger global sales volume than the combined sales of PSA and FCA. However, there also exist some challenges that need to be addressed. PSA has just recently acquired Opel and the Fiat-Chrysler merger didn’t happen that long ago, so this would be a fusion of companies from 4 different countries that must become fully integrated. In addition, PSA and FCA often compete in the same markets, segments and in similar price brackets, which could anticipate some need for consolidation,” Pacheco said. 

It must be also noted that approval for this merger comes months after FCA cancelled merger talks with PSA’s rival firm Renault. 

Fiat which is facing a downturn in its markets has been open for merger talks for quite some time, like other carmakers.

Volkswagen in July said it will work with Ford Motor on electric and self-driving car technology, while Japan’s Toyota Motor is strengthening ties with Suzuki Motor and China’s BYD Co.

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