Fiat Chrysler and Peugeot owner announce $48 billion merger

October 31, 2019 0 By Gloria Hornyak

Fiat Chrysler and Peugeot owner PSA Group have decided for a $48 billion merger that would make an automaking giant with combined revenues of $190 billion and spread the enormous cost of developing electric and autonomous vehicles.

Shareholders of each automaker would own 50% of the combined operation, the companies said in a joint statement on Thursday. A binding agreement could be finalized within weeks, the statement said.

The combined company would be based in the Netherlands, which is the current headquarters of Fiat Chrysler. John Elkann, the US-born scion of the Italian family that founded Fiat, would be chairman of the combined company, while PSA chief executive Carlos Tavares would be CEO.

The company would have roughly 410,000 employees and rank among the largest automakers in the world. Fiat Chrysler (FCAU) and PSA (PUGOY) sold a combined 8.7 million vehicles last year, just ahead of General Motors (GM), which sold 8.3 million, and not much behind Volkswagen (VLKAF) and Toyota (TM), which each sold over 10 million.

The merger comes due to a global auto sales slowdown. At the same time, carmakers are preparing to invest in the electric and hybrid technologies needed to meet strict new emissions targets in China and Europe. The autonomous vehicles of the future also present a threat to traditional industry business models. The huge amount of capital needed to meet these new challenges has prompted some automakers to find partners and turned others into acquisition targets.

Jessica Caldwell, Edmunds’ executive director of industry analysis, said the planned merger of Fiat Chrysler and France’s PSA “isn’t really about product or expanding to new markets.” Instead, it’s about funding research into the vehicles of the future.

“The electrified, autonomous future everyone is waiting for just isn’t feasible without automakers merging and forming strategic alliances to share research and development costs,” she said. “This is a smart move by both Fiat Chrysler and PSA to ensure their companies continue to be viable and relevant as the industry evolves.”

The carmaker with the most urgent need to combine in this case was PSA, which has fallen behind on developing clean cars. Electric vehicles account for less than 0.3% of its overall sales, and it had to pay Tesla (TSLA) for credits needed to comply with EU emissions standards. Fiat Chrysler has also swept larger rivals in developing electric vehicles.

Even the biggest players in the industry are making changes. Volkswagen and Ford (F) are working together to develop electric and self-driving vehicles, while German carmakers BMW (BMWYY) and Daimler (DDAIF) have formed a joint venture that will develop driverless technology. Honda has invested in General Motors’ self-driving car unit.