If there’s one business strategy Fiat Chrysler Automobiles CEO Sergio Marchionne hasn’t wavered on lately, it’s merging with another automaker. He firmly believes consolidation is the only future for the industry, or at least for his company, but he can’t find anyone willing to team up with him. GM said no thanks, and Ford said no before anyone even asked. Marchionne still sees Volkswagen and Toyota as potentials, but neither has much incentive to take him on. There is one company out there, though, that might be both the right fit and the right amount of desperate: PSA.
PSA Group, parent of France’s Peugeot and Citroën, is in trouble. Economic instability in Europe and Russia, home of most of PSA’s key markets, have hurt sales tremendously. A smaller automaker, PSA has had trouble gaining strong footholds in non-European markets, though it does have a strong ground game in Africa. It’s made inroads in South America and China but not on the scale of the world’s top automakers. In addition to tough markets and the resulting lack of cash, PSA is struggling to update an aged product lineup while simultaneously launch DS as a standalone brand free from Citroën.
To save itself, PSA has put forth a plan to globalize. It needs to grow, and quickly, in major markets such as China. CEO Carlos Tavares has hinted the brands need to return to the U.S. market, as well, both for the sales and the legitimacy. He also needs product. Right now, PSA brands specialize in hatchbacks, sedans, and vans; PSA has all of three crossovers between its three brands. Crossovers of all sizes being the hottest segments globally, PSA is already behind and can’t afford to miss out. The surprise hit, the C4 Cactus, can’t carry the whole company.
PSA does have its strengths, though. Citroën’s hydraulic suspension, which it’s modernizing and planning to apply to all vehicles, offers a world-class luxury ride. Peugeot was the first brand to market with a diesel hybrid. It also has the sporty two-seat RCZ.
Now consider FCA. Its core competencies are trucks and SUVs. The Jeep and Ram brands are carrying the company as the Fiat brand falters everywhere but Latin America. Marchionne has recently announced he’s discontinuing the Dodge Dart compact sedan and Chrysler 200 midsize sedan and is seeking a partner to build the cars under contract—that is, rebadging competitors’ products as Dodges and Chryslers. The Chrysler brand in particular is starved for product with only the Pacifica and 300 left to lean on. Likewise, the Fiat brand is in desperate need of new product.
What’s more, FCA has global reach. Although it overlaps with PSA in Europe and Latin America, FCA is well established in the U.S. and has made inroads in China and the Middle East. FCA also has cash from all those truck and SUV sales, cash it needs to invest in diversifying its lineup.
It’s not a match made in heaven, as both companies have big financial weaknesses and are susceptible to an economic downturn or oil shock. Both companies are behind on hybrid and electric vehicle research and development, something governments around the world will make inevitable as fuel economy and emissions regulations continue to tighten.
Although an FCA/PSA tie-up won’t solve all their respective problems at once, it could be a strong starting point. PSA wants back into America, and FCA needs someone to build small and midsize sedans. FCA has decades of experience with U.S. regulators and regulations that PSA doesn’t, which PSA could benefit from before attempting to relaunch its own brands here. FCA, meanwhile, has a range of SUVs, which PSA desperately needs to compete in the biggest segments worldwide, and PSA has scads of small hatchbacks, which FCA desperately needs to prop up its European operation. Each brand has unique experience in China that the other could benefit from, FCA with Jeep and PSA with its Dongfeng partnership.
Of course, before we talk about marriage or at least a long-term commitment, we’d need to get them in the same room. Tavares is a known deal maker, and PSA already has several partnerships. He’s also indicated he won’t consider any merger until his company is back on its feet. Marchionne, meanwhile, is only shopping his company to partners with the largest potential dowries. Would he even look at a smaller company such as PSA?
The answer, for now, is no. Asked point-blank about it, Marchionne told Automotive News Europe, “We realized that even though there was a certain advantage in an association with PSA, it was an advantage that was too little and that in effect would limit the choices open to FCA going forward.” Tavares, for his part, was less dismissive and has simply said he hasn’t talked to FCA about a merger.
Both may need to reconsider their positions, Marchionne in particular. Toyota is among the three largest automakers in the world, financially secure, and currently free from scandal. It doesn’t want or need the headache of fixing FCA, nor does it need any of the products or technology FCA has to offer. There’s no incentive there.
It’s a similar story over at Volkswagen. Yes, the diesel scandal has badly hurt them, but that’s enough to deal with without fixing FCA’s problems, too. Volkswagen already has 12 diverse brands to look after and doesn’t need seven more to deal with. There are some cases to be made at the product level, where FCA has trucks and some SUVs Volkswagen might be interested in, and we know former board Chairman Ferdinand Piëch has long had an eye for Alfa Romeo, and he still carries considerable influence at Volkswagen. It’s no secret Volkswagen could use help figuring out how to sell Volkswagens in America, and it did team up with FCA for a rebadged minivan a few years back, but Volkswagen simply has too many of its own problems to bother with FCA. There just isn’t enough to gain from FCA to make it worth the headache.
With the big players likely off the table, sooner or later Marchionne is going to have to drop the too-good-for-you attitude and start talking to medium and small automakers if he’s serious about a merger. Marrying into a rich family sounds great but only if you can find a willing partner. If there aren’t any, a motivated up-and-comer isn’t a bad alternative. Tavares, meanwhile, need only look at his 10-year plan to tiptoe back into the U.S. market to see the advantage in hooking up with a bigger company that can jumpstart PSA’s turnaround.
Even if a full FCA/PSA merger isn’t in cards, Marchionne and Tavares would do well to consider a product development deal. Marchionne hasn’t found anyone to build his sedans yet, and PSA needs SUVs yesterday. These two need each other, and more important, they need the cost savings and profits that would come from trading product and knowledge.
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