The New Factory. – A few months ago, discussions seemed advanced between Renault and Fiat-Chrysler. It is with PSA that FCA could merge. How do you explain this change?
Bernard Jullien. – It seems indeed that Fiat-Chrysler officials were very eager to conclude an agreement with Renault. The group, and even more so when thinking Alliance-wide with Nissan, has interesting fundamentals for FCA, because of their long-standing mastery of electrification technologies or their presence in Asia and China.
But John Elkann has no doubt quickly realized that this deal with Renault would be complicated and that the state shareholding agency wish to privilege and retain the Nissan partner first. The summer has reopened the opportunity for an agreement with the PSA group, which is more in need of this type of operation given its sales volumes.
This possible merger between PSA and FCA is therefore an illustration of a consolidation movement expected by some experts in the sector?
A standard is emerging around groups selling 8 to 10 million vehicles a year. Builders below this level will probably have to move, for operational reasons or under the pressure of their shareholders. Not everyone will be burdened with the complexity of a merger with the operational risks involved, but will be able to rely on more punctual alliances. To return to PSA, spreading R & D costs on 8 million vehicles instead of 4, changes the game. On battery cells, for example, manufacturers today agree that it is a know-how to master internally. Volkswagen and Toyota have taken this course, but I do not think that PSA would have been able to consider this type of investment by remaining in the position that is currently his.
OUR FILE TO READ ON THE POSSIBLE MERGER BETWEEN FIAT-CHRYSLER AND PSA
Is the North American presence of FCA not also an asset for PSA?
It is true that Fiat-Chrysler has two attractive assets that are Jeep and Ram. But the group remains a technologically fragile company, as well as its products and brands. The group invests less than 3% of its turnover in research and development, a level well below other manufacturers. In 2014, the former leader Sergio Marchionne had evoked an ambitious product plan that would allow them to reach the 7 million vehicles in 2019, which is not the case today. FCA has several problematic brands, like Dodge, Alfa Romeo, not to mention Fiat. A lot of industrial fitness work, especially in Europe, must also be conducted in the group. This fusion is far from aberrant, but it is perilous.
But PSA already has the experience of this type of operations with the purchase, then the recovery of Opel …
Opel was an acquisition, not a merger of equals. That said, it is certain that the possible appointment of Carlos Tavares to the general direction of the future entity is rather good news. But the sites are numerous. Not to mention that if Carlos Tavares had the free field at the head of PSA, he risks being tugged in the new group between the needs of ex-party FCA and the former group Peugeot-Citroën-DS-Opel-Vauxhall . At FCA, he will also have to deal with a very different engineering culture on the American side, which may not always align with his positions. Daimler had had the bitter experience of this, with the purchase and sale of Chrysler. The shareholding of the new entity is also likely to be more widespread. For the merger to proceed at best, it will be necessary to clarify these issues of governance and shareholder pact, with the certainty that the industrial project will prevail on the financial side.
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