• by Thom Forbes  @tforbes, December 18, 2019

Fiat Chrysler Au­to­mo­biles NV and Peu­geot maker PSA Group have nailed down a 50-50 merger that has been in the works  since October, creating the world’s fourth largest automobile company by volume  -- behind Toyota, Volkswagen and the Renault-Nissan alliance  -- and the third largest by revenue.

The binding terms “in­clude sweet­en­ers to make the trans-At­lantic tie-up more at­trac­tive to U.S. reg­u­la­tors and PSA share­hold­ers,” Nick Kostov and Ben Dummett   write for The Wall Street Journal. 

“Among the terms added over the past several weeks were agreements that China’s state-run Dongfeng Motor Group Co. would sell part of its 12.2% stake in PSA back to the French car maker and that Fiat Chrysler would spin off its Comau division after the deal,” they report.

“The agreement allows the companies to move forward with the goal of Fiat Chrysler's late CEO, Sergio Marchionne, to obtain regulatory and shareholder approval to combine with another major automaker. The process is expected to take 12 to 15 months. A name for the combined company has not been announced,” Breana Noble writes  for The Detroit News.

Carlos Tavares, who leads PSA, will be CEO of the new company; Fiat Chrysler chairman John Elkann will be its chairman.

“The merger would forge a regional powerhouse to rival Germany’s Volkswagen AG and have a stock-market value of about $46 billion, surpassing Ford Motor Co. The tie-up also brings together two auto-making dynasties -- the billionaire Agnelli clan of Italy, led by Fiat chairman John Elkann, and the Peugeots of France,” write  Bloomberg’s  Tommaso Ebhardt, Ania Nussbaum and Danielle Lepido for Time.

“The combination will give Peugeot-maker PSA a long-sought presence in North America and should help Fiat gain ground in developing low-emission technology. Yet it doesn’t fix all of the their shortcomings, Juergen Pieper, an analyst at B. Metzler Seel Sohn & Co. told Bloomberg Television on Tuesday. The business will still lack ‘very good premium brands’ as well as ‘a good position in China,’ he said,” Ebhardt, Nussbaum and Lepido add.

To start, the combined company “will have 14 brands, from Alfa Romeo to Peugeot. But would all of them survive?” asks Luca Ciferri for Automotive News Europe. The other dozen are: Abarth, Citroen, Chrysler, DS Automobiles, Dodge, Fiat, Jeep, Lancia, Maserati, Opel, Ram and Vauxhall.

“PSA chief Carlos Tavares, as designated CEO of the combined company, said in November that there were no current plans to scrap any of the brands, but he acknowledged that managing the portfolio would be part of the ‘challenge’ he and his leadership team will face…. Tavares suggested that despite his love for storied brand names like Alfa Romeo, some might not survive.”

Ciferri looks at the recent performance of each of the brands. Besides Alfa Romeo, Citroen, Chrysler, Dodge and Lancia appear to be in the weakest positions.

The companies are combining at a time when the automobile industry is is turmoil. “Let us not pussyfoot around the issue. All auto manufactures are facing a difficult business model,” observes  Stephen Pope for Forbes. “There are challenges to restrict emissions and migrate production lines over to hybrid and indeed, fully electric vehicles.

“Statista reports that in the two-year period from 2017 to 2019 some 85.9% of automobile sales were made under finance schemes. Even individuals with poor credit histories can be offered finance. Maybe, the view is that any credit facility is secured against the vehicle itself, however, that vehicle is from day one an asset whose value depreciates rapidly. Similarly, there is a growing consensus that the young generation are not so motivated to buy a vehicle,” Pope adds.

“The merger has the blessing of the French government, which earlier this year derailed an attempt by Fiat Chrysler to merge with Renault. PSA and Fiat have said they will not close any factories, pleasing political leaders, but analysts are skeptical that they can keep that promise when sales are under pressure around the world,” Jack Ewing and Liz Alderman write  for The New York Times.

“‘The merged group will have to make massive savings and probably also close plants, even if the CEOs’ choice of words is different,’ said NordLB autos analyst Frank Schwope after the binding agreement was announced on Wednesday,” Reuters’ Gilles Guillaume and Giulio Piovaccari report.

But Tavares, as you would expect, is looking at the bright side of the deal right now.

“Our merger is a huge opportunity to take a stronger position in the auto industry as we seek to master the transition to a world of clean, safe and sustainable mobility and to provide our customers with world-class products, technology and services,” he says  in the release announcing the agreement.