PSA- Fiat Chrysler: the reasons for John Elkann's "reversal of alliance" – Les Échos

"Do not be afraid of the new, you must erase from your vocabulary the impossible word …" FCA President John Elkann has included this quote from his grandfather, Gianni Agnelli, on the front page of the Agnelli Foundation in Turin. The climate was yesterday, feverish waiting in the Piedmontese capital where the Italian manufacturer celebrated its 120th anniversary in July. Febrile, with a certain amount of anxiety linked to recent disappointments.

Five months after officially giving up

   , on June 6, at its offer of merger with Renault-Nissan, the heir of Agnelli finds himself in the position to have reinvented a
strategic merger

    in a record time. With the difference that FCA is more target than integrator this time. Some see this as a sign of an urgent need for an alliance for the Italian manufacturer, dictated by its delay in electrification and its limited investment capacity. John Elkann's entourage prefers to see this as a sign of strategic flexibility and a realistic vision of the urgent need for an urgent consolidation of the automotive industry in Europe.

More time to lose

"There is no more time to lose in terms of consolidation. Contrary to what we think, John Elkann does not want to leave the car: he remains convinced that it is the mother of all technologies ", says the entourage of the president of FCA. Take out no, delegate the management to a partner able to fill the gap of the Italian group in the electrical sector and double its investment capacity at a pivotal moment for the entire industry, yes. "FCA speaks more easily with PSA than with Renault"says an Italian banker. "This time, Mike Manley (CEO of FCA) has the free hand to lead the negotiations with Carlos Tavares, with the help of the bankers of Goldman Sachs in the United States". However, he does not hide that "The social cost may be greater than with Renault because of Opel's takeover by PSA in Germany".

If caution is still needed in Turin, it remains to analyze the reasons for a reversal of alliance that is not obvious. At a meeting held on the eve of the announcement of the merger FCA-Renault, John Elkann had taken care to personally notify Robert Peugeot, representative of his long-time partner in commercial vehicles. But he was also deeply irritated by the "leak" of Carlo Tavares' "internal memo" aimed at overthrowing the merger.

Charisma of the French boss

Paradoxically, FCA is now relying on the charism of the French boss to get the green light from the government of Edouard Philippe. It is little to say that the Italian group was deeply annoyed, even bruised, by the procrastination of France, and in particular the Minister of the Economy, Bruno Lemaire, on its initial offer of merger with Renaut-Nissan. "Nissan was never the real problem: it was a pure pretext. These are the guarantees requested by the French government that blew up the agreement in June ", assures the entourage of the president of FCA.

Why, this time, did John Elkann allow himself to be convinced that a merger with PSA is more likely to be successful today? "Senard and Elkann had underestimated the difficulties of a three-man household. Renault has not clarified its links with Nissan and the Japanese system. As part of a merger with PSA, the Chinese DongFeng can be diluted "Giuseppe Berta, professor at the Bocconi and specialist in the industrial history of Fiat. Clearly, it's no longer a forced marriage between two lame ducks, but an alliance with a "Gifted cost reduction".

New role at Exor

"The hope is that the most vulnerable brands of FCA in Italy, Alfa Romeo and Maserati, can be relaunched under the leadership of the man who managed to straighten Opel in Germany"he adds. Despite the revival of Jeep, the "jewel" of FCA, and the breakthrough of RAM in the United States, the Italian manufacturer still suffers from chronic underinvestment in the electrical sector, with only two models in preparation: the new 500 electric end of 2020 and an entry-level Panda for 2022.

In this regard, according to some observers, the sale of the equipment manufacturer Magneti Marelli, to the Japanese Calsonic Kansei (KKR), although negotiated at a price of 5.8 billion euros in October 2018, would have resulted in the loss of important patents in the electricity sector. But the need to pay dividends to family shareholders has prevailed.

The real reasons for John Elkann's turnaround are mostly in his new role as head of Exor, the family investment company. Based in the Netherlands, it holds nearly 30% of FCA (and 42% of the voting rights), Ferrari, PartnerRe, 43% of "The Economist" and Juventus … "Since the disappearance of Sergio Marchionne (former CEO of FCA) a year ago, John Elkann is clearly the only master on board. His priority is to keep the different branches of the extended family, shareholders of Exor, united and reduce his debt (2.5 billion dollars). "says an Italian banker. For the Agnelli heir, who did everything possible to turn Exor into a diversified holding company – at Warren Buffett's Berkshire Hathaway – the time of the alliance has come in the face of the mobility revolution.

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