Fiat Chrysler, PSA Group are said to explore potential merger

David Welch, Tommaso Ebhardt and Ania Nussbaum

Fiat Chrysler Automobiles NV and French carmaker PSA Group are exploring a combination, in a potential deal that would reshape the global auto industry and create a European powerhouse to rival Volkswagen AG, people with knowledge of the matter said.

The two companies are holding talks about a merger, the people said, asking not to be identified because the information is private. Under one recent proposal, Peugeot owner PSA would be the acquiring entity and the French side would have an advantage in terms of board seats, according to one of the people.

In this Monday, Jan. 14, 2019 file photo, Fiat Chrysler Automobiles FCA logo is shown at the North American International Auto Show in Detroit.

A merger of the Italian-American automaker and PSA, Europe’s second-largest car manufacturer, would create a global company with a current stock-market value of $47 billion – about the same size as Japan’s Honda Motor Co.

PSA’s board is holding an extraordinary meeting Wednesday afternoon French time, two of the people said. The companies have discussed putting PSA Chief Executive Officer Carlos Tavares in the same role at the combined company while John Elkann, scion of Fiat’s founding Agnelli family, would be chairman, one person said.

The talks come several months after Fiat Chrysler and PSA explored a partnership on pooling investment to build cars in Europe, and following the collapse of negotiations between Fiat Chrysler and French competitor Renault SA in June. Fiat Chrysler shares jumped in U.S. trading on the news, which was first reported by the Wall Street Journal.

The French government would play a key role in any deal because France is one of the biggest owners of PSA, whose brands include Peugeot, Opel and Citroen. The situation is fluid, and there’s no guarantee an agreement will be reached, the people said. Representatives for Fiat Chrysler, PSA and the French finance ministry declined to comment.

Pressure on automakers

Automakers face tremendous pressure to combine forces and share costs from platform development to manufacturing and purchasing as they battle through trade wars, a global slowdown and an expensive shift toward electrification and autonomous driving. In Europe, PSA and Fiat Chrysler face the additional burden of new emissions regulations that will force the industry to meet stringent fleet requirements next year.

The logo of French automaker Peugeot is pictured.

PSA has been mooted as a logical merger partner with Fiat, because of their complementary product and geographic fit, and the two sides talked about a possible partnership earlier this year. However, the Italian-American carmaker instead pursued a deal with Renault. Those talks were called off in June amid opposition from the French government and a lack of support from Renault’s Japanese alliance partner Nissan Motor Co.

Elkann had walked away from the potential deal with Renault blaming “political conditions in France.” Fiat Chrysler signaled at the time that the French state would have to give up its sway over Renault for a resumption of talks, people with knowledge of the situation said at the time.

Fiat Chrysler is seen as a laggard in new technologies such as electrification and autonomy, which are expected to cost automakers billions of dollars over the next decade. The company has sought to secure its future with a larger partner for several years, dating back to former CEO Sergio Marchionne’s failed courtship of General Motors Co. After being rebuffed by GM in 2015, rumors of talks with other automakers have swirled with varying intensity.