Fiat Chrysler, Peugeot shareholders approve merger
Shareholders of Fiat Chrysler and PSA Peugeot voted Monday to merge and create the world’s fourth-largest auto company which, its architects hope, can more readily take on an enormous technological shift in the industry.
Addressing separate meetings, PSA Peugeot CEO Carlos Tavares and Fiat Chrysler Chairman John Elkann spoke of the “historic” importance of the merger, which combines legacy car companies that helped write the industrial histories of the United States, France and Italy. Tavares will run the new company, while Elkann stays on as chairman.
Before the merger is finalized, shares in the new company, to be called Stellantis, must the launched. It will be traded in Milan, New York and Paris. Fiat Chrysler was trading up 2.5% in Milan at 15.03 euros, while Peugeot rose 3.4% in Paris to 23.13 euros.
The new company will have the capacity to produce 8.7 million cars a year, behind Volkswagen, Toyota and Renault-Nissan, and create 5 billion euros in annual savings. That is higher than the 3.7 billion euros estimated when the deal was announced in December 2019.
The marriage of the Italian-American and French rivals is built on the promise of cost savings in the capital-hungry industry during a technological shift to electrified powertrains and autonomous driving. But what remains to be seen is if it will be able to preserve jobs and heritage brands in a global market still suffering from the pandemic.
“Together we will be stronger than individually,″ Tavares told a virtual gathering of eligible shareholders. “The two companies are in good health. These two companies have strong positions in their markets.”
The new company will put together under one roof French mass-market carmakers Peugeot and Citroen, top-selling Jeep and Italian luxury and sports brands Maserati and Alfa Romeo - pooling brands with histories spanning from 75 to over 120 years with strong emotional pull in their home markets.
“We are living through a profound era of change in our industry,” Elkann, heir to the Fiat-founding Agnelli family and Fiat Chrysler’s biggest shareholder, told shareholders. “We believe that the coming decade will redefine mobility as we know it.”
While the tie-up is billed as a merger of equals, the power advantage goes to PSA, with Tavares running Stellantis and holding the tie-breaking vote on the 11-seat board. Tavares is set to take full control of the company early this year, possibly by the end of January.
Fiat Chrysler CEO Mike Manley will head North American operations, which is key to Tavares’ long-time goal of getting a U.S. foothold for the French carmaker he has run since 2014, and the clear money-maker for Fiat Chrysler.
Manley said about 40% of the savings will come from combining platforms, the underpinnings of vehicles, and engines and transmissions. The combination will optimize “our investments in R&D, and improving manufacturing processes and tooling efficiencies,” he said.
Another 35% of the savings will come from joint purchasing, especially with electric and high tech components, he said, while 7% will come from sales, general and administrative cost savings.
The companies will get the rest of the savings from optimizing other areas including logistics, supply chain, quality and parts sales, he said.
“Clearly the success of the merger will be measured by the ability to effectively integrate the two companies so as to enable the realization of these vast synergies,” Manley said. “We feel confident that this integration can be achieved as both companies have previously gone through significant business combinations. And by virtue of successful execution, they have both emerged stronger from each of them.”
Such a deal was long wanted by Fiat Chrysler’s long-time CEO Sergio Marchionne, who had predicted the necessity of consolidation in the industry. He was unable to find a deal before his sudden death in July 2018.
Tavares comes into the new role with a reputation as a cost-cutter and skilled manager, qualities he put to use as head of Nissan’s North American operations from 2009 to 2011 and in integrating Opel and Vauxhall into the PSA Peugeot family after buying them in 2017. Experts say he is likely to follow a blueprint that showed little tolerance for vehicles or ventures that didn’t make money.
That could put into the crosshairs any of the 14 car brands that Stellantis will house, five from PSA and nine from Fiat Chrysler. The companies also have significant overlaps in manufacturing and engineering operations in Europe.
PSA told the AP last week that decisions on brands would be communicated after the deal is closed. Fiat Chrysler said there are no plans to close any plants.
Analyst Patrick Hummel from UBS bank said he expected “immediate action to be taken right after closing, for example by bringing FCA’s European product on the PSA architectures.”
Still, analysts point out that gaining cost savings is only the first of many that the new company will face. Both PSA and Fiat Chrysler have poor records and infrastructure in China, and both are lagging in electrified powertrains, requiring investments that will off-set some of the savings.
PSA has set a goal of having all-electric or hybrid powertrains on its entire model range by 2025, while Fiat Chrysler has committed to electrifying 30 of its models by 2022.
Meeting those challenges will take more than restructuring prowess, said Ferdinand Dudenhoeffer of the Center for Automotive Research in Germany.
“Carlos Tavares is a restructuring guy. He knows how to restructure, but he has no ideas for a new tack,” he said.