Let's go. The directors of Fiat Chrysler and PSA
have given their agreement
to launch what will become one of the largest auto mergers. In a few weeks, once signed the "memorandum of understanding" that will legally commit them, the two groups will be able to give birth to the fourth world manufacturer, with 8.7 million vehicles sold, 170 billion euros in turnover, and 410,000 employees on the planet.
The operation received the blessing of the two governments – provided that investment and employment are preserved. "Thanks to this operation, France will be able to have two car manufacturers among the five world champions", welcomed the Minister of Economy Bruno Le Maire.
Most unions have also welcomed the principle of the "deal" with kindness, although Laurent Berger, general secretary of the CFDT, has described as "objectively scandalous" the location of the future headquarters in the Netherlands. This mega-merger "puts PSA at the height of the world giants that are Volkswagen and Toyota," said Patrick Michel, FO delegate, the first syndicate of the tricolor manufacturer.
The operation seems to be on track. But the task ahead
Carlos Tavares, Chairman of the Executive Board of PSA
who will become general manager of the new ensemble, will be huge and not easy. Here is a non-exhaustive list of the challenges ahead.
Make sure he has the means to invest
What did the boss of PSA and John Elkann, the leader of the Agnelli family, say
their long meeting on the Sunday preceding the announcement of the betrothal
? Has Carlos Tavares ensured that his future family shareholders will not be too greedy for dividends, and will accept a decline in profitability if need be? Because the group will have to make heavy investments in the car of the future? "This is my most important challenge," says Bernard Jullien, industry expert and senior lecturer at the University of Bordeaux. "If Fiat Chrysler is now in escheat in Europe, it is because the late Sergio Marchionne, the previous boss of the group, had to limit investments under family pressure. This is also what precipitated PSA in the serious crisis that we know after 2008.
So far, Carlos Tavares (who joined the group in 2013) has been preserved from such pressure thanks to the balanced structure of shareholding set up after the crisis, giving the Peugeot family, to the Chinese Dongfeng and to the French State via bpifrance, 12% of the capital each. PSA will appoint the majority of the directors of the future together (6 out of 11, including Carlos Tavares), but the boss of the future giant could nevertheless have to fight. "He's great at defining a strategy or an industrial plan, but will he be able to do politics? Asks an observer. The question is likely to arise soon enough because the investment needs are huge, just as auto markets are starting to slow down.
Relaunch Fiat in Europe
If FCA is still a real cash machine in the United States thanks to Jeep and RAM, we will have to stop the hemorrhage in Europe. While it shows operating losses on the Old Continent, the Italian-American group has just depreciated heavily assets (including Fiat and Alfa Romeo) 1.4 billion euros, he announced Thursday. a net loss of 179 million euros in the third quarter of 2019. Or FCA has not invested in the renewal of its range, nor in the electrification required in view of the Brussels constraints on CO2 emissions.
Carlos Tavares will have to wait without mobilizing teams to relaunch new Fiat from PSA platforms. "We saw what he was capable of with Opel," says Romain Gillet, an analyst at IHS Markit. The new Opel Corsa presented in Frankfurt in September was fully redeveloped on a PSA platform after the acquisition of the German manufacturer in the summer of 2017. But for that the teams worked hard. Will they have the energy to renew the feat?
Several analysts are also concerned about antitrust provisions. The two groups will together hold between 22 and 24% of the European market, but their market share would increase to 55% in Italy and 35% in France. "This should remain acceptable because Brussels refers to the European market," said Bernard Jullien. "Volkswagen owns 55% of the German market, and nobody can complain about it. On the other hand, Fiat, like Opel, are general brands: there will be an inevitable cannibalization with the PSA brands. A pitfall that Carlos Tavares will also have to avoid.
Restructuring the industrial tool of the Italian group
Both groups promised that the mega-merger would not result in plant closures – which does not mean jobs will all be preserved. But the industrial tool of FCA in Italy is far from full (its rate of use is around 60%, according to Bernard Jullien) and it is not sure that the announced investments will suffice to fill it. "We will have to restructure, I fear the reaction of the Italian government," says Gaëtan Toulemonde, analyst at Deutsche Bank. It is not sure that Opel's experience (where PSA has cut 6,000 jobs) is of great benefit to it. "Italy has 15% unemployed, against 3% in Germany," notes the analyst. On the other hand, Carlos Tavares knew
significantly reduce PSA's workforce in France
no major problem, thanks to voluntary departure plans. A know-how that he will have to put to the test of a bigger and more complex group.