“If these two companies can pool capital investment and research-and-development costs and deploy the content across a wider range of vehicles, they can see cost efficiency improvements,” said Stephanie Brinley, principal automotive analyst at the data and research firm IHS Markit.
Speaking on Fiat Chrysler’s earnings call Thursday morning, chief executive Michael Manley said that the merger was “consistent with everything we’ve been saying for a long time about the need for smart industry consolidation.”
“The opportunity this represents for both companies is very compelling,” he said.
Sergio Marchionne, the chief executive who revived Fiat and Chrysler and who died last year, had long advocated for consolidation as a means of widening his company’s global footprint and streamlining the industry as a whole, ensuring there was enough capital to invest in new factories, technologies and products. But electric and autonomous vehicles have only shortened the window for rolling out new products, driving up the cost of investment.
Michelle Krebs, executive analyst for Autotrader, said the car industry is at a crossroads, one summed up by Thursday’s announcement. Companies have to focus on traditional vehicles that rely on gasoline and help drive profits. They also have to invest in the technology to stay competitive down the line on electric and autonomous cars.
The United States has not adopted the same degree of emissions standards in place in Europe and China, but automakers and consumers here are still enticed by the opportunities that electric and autonomous vehicles could bring.
An April analysis by IHS Markit found that there were 208,000 new registrations for electric vehicles in the United States last year — more than double that filed in 2017. The report estimated that more than 350,000 new electric vehicles will be sold in the United States next year, but that represents a 2 percent share of the U.S. fleet.
The companies announced that shareholders of Fiat Chrysler and Peugeot would own 50 percent of the consolidated company. It will be based in the Netherlands, the home of Fiat Chrysler, and have a global workforce of 410,000. Collectively, they sold 8.7 million cars last year, topping General Motors and trailing Volkswagen, Renault-Nissan-Mitsubishi and Toyota, and generated $190 billion in revenue.
Once the deal is complete, Fiat Chrysler Chairman John Elkann will be chairman of the new company, and PSA chief executive Carlos Tavares will become CEO. Shares of the new company will be listed in New York, Paris and Milan. The stock prices of both Fiat Chrysler and Peugeot rose earlier this week on reports that a merger was expected.
Earlier this year, Fiat Chrysler had explored a merger with French automaker Renault. But the deal was complicated by the fact that the French government owns 15 percent of the company and is its largest shareholder. At the time, Fiat Chrysler said that “it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully.”
CNN reported that France had said it would approve the deal only if there were protections for French jobs and factories.
The French government also owns over 12 percent of PSA, though it was unclear whether politics and regulation would play into Thursday’s announcement.
PSA and Fiat Chrysler lagged behind larger automakers when it came to electric vehicles. PSA, for which electric vehicles account for less than 0.3 percent of overall sales, had to pay Tesla for the credits required to comply with emissions standards within the European Union.
Still, the automakers’ larger competitors are not averse to pairing up. Volkswagen and Ford are working in tandem to develop electric and self-driving cars. In Germany, BMW and Daimler are teaming up on driverless technology. General Motors also has gotten an investment from Honda for its self-driving unit.
“Everyone is skinning the cat a different way,” Krebs said.
Rolling out greener cars won’t be the combined company’s only challenge. PSA has nearly no traction in the United States. The brand never caught on in America as it has across Europe. And neither Fiat Chrysler nor PSA has a significant imprint in China, the world’s largest new car market.
“If you’re going to be a global automaker, you have to be healthy in China,” Krebs said.