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FCA+PSA: The Real Merger Target?

by David Zatz on

Most Americans have lost track of both Peugeot and Citroën, and may not even be aware that the two French automakers — both of which have left the United States, but remain a force in other parts of the world — are part of a single company, PSA.

FCA+PSA

PSA has been struggling, as they rely heavily on Europe for sales. The company has worked with Fiat in the past, and, in a fairly irrelevant footnote, Peugeot purchased the profitable Chrysler Europe (SIMCA and Rootes Group) in 1978.

As Sergio Marchionne seeks to eliminate overlap, PSA seems like an obvious choice, at least to some analysts: the former Chrysler is making money, the former Fiat is losing money in Europe. That makes consolidation in Europe more of a priority, to step the bleeding.

The two companies are complementary in many product lines, and have overlap in others. Sharing components and resources would likely cut the combined companies’ expenses by billions of dollars per year, while opening up new markets through shared distribution channels — for the same reason that Fiat, Alfa Romeo, Maserati, Jeep, and Chrysler combined can make it in some countries (and continents) where F/AR/M or J/C/D could not make it work on their own.

share

In Europe, for the first five months of the year, PSA was #2 in Europe, with a 10.8% share (Volkswagen-Audi Group had a 24.5% share), with 152,262 sales. FCA had a 6.2% share, with 87,438 sales.

Other than Suzuki, no other automaker seems like a likely prospect for merging. Volkswagen-Audi is technically possible, but would crush FCA — and it seems that Sergio Marchionne and John Elkann alike want a deal where FCA will be on top, or at least equal partners.  Suzuki would be complementary, though, and Mr. Marchionne’s latest speech was about about consolidation.

The CEO of PSA has said that he will not think about mergers until after a reorganization is complete, but that may be posturing (like Mr. Marchionne’s recent comments that Toledo may not make next-generation Wranglers after all) to raise the price. The government of France may be the real issue: they have proactively stepped in to prevent Renault’s independence, and both the French and German governments have protected their industries.

In the end, perhaps one Allpar forum poster’s comment may be true — Mr. Marchionne and Mr. Elkann may be floating various merger rumors to buy time among key investors, who want to see an instant return in an industry that has none.


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