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Fiat Chrysler Automobiles NV and French automaker Peugeot's Groupe PSA plan to merge, creating a global automaker seeking to compete in an industry evolving toward autonomy and electrification.

Shareholders of both companies under the proposed plan would own 50% of the combined entity, the automakers said in a combined statement early Thursday. The new company is expected to save annually $4.1 billion (3.7 billion euro) in "synergies" from combining investments in vehicle platforms, powertrain and technology — but not plant closures.

More: FCA post record North American earnings in 3rd quarter

PSA CEO Carlos Tavares, 61, would lead the new Dutch-domiciled automaker and hold one of 11 board seats. John Elkann, FCA chairman, would chair the board and sit alongside four other FCA appointees. In addition to Tavares, PSA would nominate five other members, including the board's vice chairman and senior independent director.

FCA CEO Mike Manley, six years younger than Tavares, likely would become chief operating officer and run its North American operations from Auburn Hills, according to two sources familiar with the situation.

"I'm delighted by the opportunity to work with Carlos and his team on this potentially industry-changing combination," Manley said in a statement. "We have a long history of successful cooperation with Groupe PSA and I am convinced that together with our great people we can create a world class global mobility company."

Added Tavares, who has known Manley for a decade: "This convergence brings significant value to all the stakeholders and opens a bright future for the combined entity. I’m pleased with the work already done with Mike and will be very happy to work with him to build a great company together.”

The companies did not provide a timeline for the quickly progressing deal, but the next step would be for their boards to sign a memorandum of understanding. In an email to employees obtained by The Detroit News, Manley wrote Thursday he hopes one will be reached "in the coming weeks" — and emphasized that expected "synergies are NOT based on closing plants."

The proposed merger comes amid FCA's national contract talks with the United Auto Workers, a quadrennial Detroit rite that is not expected to be impacted by news of the company's second potential transatlantic deal this year. Still, the prospect unnerves John Barbosa of Irish Hills, a 14-year employee at FCA's Dundee Engine Plant. He says the combination worries him after seeing reports of PSA cutting jobs to make profit and using many temporary employees.

"We have our contract that is coming up," Barbosa said, noting the UAW deal with General Motors Co. was "pretty sad" given the closure of three plants and a distribution center. "We are kind of expecting the same thing from Fiat Chrysler, and add PSA group to that mix, that will just make sure that the workers will not continue to get their share."

The combination of FCA, Detroit's No. 3 automaker, and PSA, Europe's second-largest car manufacturer, would create the world’s No. 4 automaker, delivering economies of scale to rival European juggernaut Volkswagen AG and shaking up the greater global auto industry. Combined annual sales of 8.7 million vehicles would rank the combined company ahead of General Motors Co.’s 8.4 million vehicles sold last year.

"In two major markets, the competition will be increased," said Ferdinand Dudenhöffer, a professor of automotive economics of the Center for Automotive Research at the University of Duisburg-Essen in Germany. "That will hurt the Japanese, even the smaller Japanese companies like Honda ... and Toyota a little bit. It puts pressure on Ford, which is weak in Europe."

Added Karl Brauer, executive publisher at Cox Automotive: “Neither FCA nor PSA, independently, are in a position to lead the industry in vehicle sales and product development. But as a united front they are immediately back in the fight to compete for volume, market share and advanced technology with today’s more powerful automakers." 

This isn't the first time FCA and PSA explored a full-scale merger. Before the maker of Fiat, Jeep and Ram vehicles last spring entered into talks with Renault SA of France — talks ultimately scuttled by meddling from the French government and opposition from Renault partner Nissan Motor Corp. — FCA and PSA moved deeply into merger talks of their own.

Less than six months later, the automakers now are paving the way for the two companies to launch a series of due diligence talks to further detail areas of cooperation, regional responsibilities and engineering efficiencies. The industrial logic of the deal traces the outline of FCA's aborted merger with Renault, pooling resources to fund next-generation technology even as powertrain combinations and vehicle architectures are rationalized.

Like the proposed FCA-Renault deal, an FCA-PSA tie-up would maintain three headquarters to accommodate parochial sensibilities: one in Paris, a second in Auburn Hills and a third in Turin, Italy, home to FCA's precursor, Fiat SpA, and the founding Agnelli family now represented by Elkann. And operational decisions, such as FCA's commitment to build a new Jeep plant in Detroit, would be unaffected, as would U.S. employment.

The companies expect their convergence would realize some of highest margins based on FCA's strengths in North America and Latin America and PSA's in Europe. FCA would distribute to its shareholders a special $6.1 billion (5.5 billion euro) dividend and its shareholding in its Comau robotics business. PSA would distribute its 46% stake in auto supplier Faurecia to its stockholders. Shares in the parent company would be traded on exchanges in Paris, Milan and New York.

For comparison, the 50-50 merger with Renault would have created the third-largest global automaker behind Volkswagen and Toyota Motor Corp. And while Renault could have leveraged its strength in Europe, it also has a decade of experience with electric vehicles — an area in which experts perceive Fiat Chrysler to be lagging and possibly facing hefty carbon-emission fines in Europe.

But in June, Fiat Chrysler revoked its offer to merge with Renault over conditions imposed by the French government, which holds a 15% stake in Renault, and the automaker's Japanese partner, Nissan. Leaders at Fiat Chrysler and Renault, however, have said they remained open to a possible combination.

"In economic terms, Renault would be a better deal to go with," Dudenhöffer said. "But in practical terms, Peugeot could be realized in the short term, and that is important."

During the FCA-Renault talks, French Finance Minister Bruno Le Maire said that there was no need to rush merger discussions, part of a concerted effort by the government to guard against politically potent plant closings and job cuts frequently associated with industrial mergers. But Le Maire's office Wednesday signaled it may have realized combining two profitable automakers like FCA and PSA is better than one.

“Consolidation in the world car industry is necessary and France wants to play its full role,” the Finance Ministry said in a statement Wednesday, according to Bloomberg News. “The two French automakers, with their respective partners, would thus be among the world’s top four.”

PSA is no stranger to the French government's influence. Although the French state's investment agency owns the Renault shares, France's sovereign wealth fund, BPIfrance, is in a three-way tie for the majority shareholder of PSA. BPIfrance owns 12.2% of the company. The other two top shareholders are the Peugeot family and Dongfeng Motor Corp., a state-owned automaker in China.

"While there may be great benefits to partnering," Michelle Krebs, an analyst at Cox Automotive, said, "time will tell if this deal sticks."

Conversations between Fiat Chrysler and PSA began earlier this year, when PSA sent out advisers for a deal to turn the company into a global player, according to Bloomberg. Manley, FCA's CEO, said in March he would look at "any deal that would make Fiat stronger." The company has been working to repair its European business.

And PSA has a history of taking American brand businesses on the continent and turning them around: In 1978, it purchased the failing Chrysler Europe and assumed its debt as the U.S. parent firm faced financial troubles. In 2017, when GM was abandoning the European market after decades of losses, the Tavares-led PSA bought the Detroit automaker's Opel and Vauxhall brands for $2.33 billion, creating Europe’s No. 2 automaker after Volkswagen. The brands represented $18.3 billion in revenue in 2018.

Tavares' strength is in restructuring, experts say. The Portuguese-born executive schooled in France honed his craft under Carlos Ghosn, his one-time boss at Renault who formerly headed the Renault-Nissan alliance and now is awaiting trial in Japan for misappropriating Nissan funds, which he denies.

To turn around Germany-based Opel and Vauxhall, Tavares slimmed the number of platforms, consolidated engineering operations and cut thousands of jobs. He has the potential to be the kind of leader to make a deal between FCA and PSA work, AllianceBernstein Holding LP analyst Max Warburton said in a note.

"In our view the combination of FCA and PSA has more logic than the previously attempted FCA-RNO deal," he wrote, "and has a far greater chance of success."

Before his death last year, Manley's predecessor, the late Sergio Marchionne, repeatedly predicted that global automakers would need to partner in order to survive a changing industry beset with increasingly stringent emissions standards and the steady creep toward autonomous and electric vehicles — going so far as presenting his argument in 2015 in his "Confessions of a Capital Junkie."

Marchionne doubled down on Fiat's deal with Chrysler in 2008. He tried to woo GM and its CEO, Mary Barra, into a blockbuster Detroit merger, but failed. He courted Volkswagen, at least from afar, until its Dieselgate scandal, executive turmoil and the massive costs that followed rendered any kind of partnership unlikely.

"PSA is a big global automaker with a good European foothold and technologies FCA could benefit from," said Akshay Anand, executive analyst for Kelley Blue Book. "FCA has a big imprint in the U.S., a market PSA is trying to get into. On the surface, it makes sense."

In theory, a combined company could consolidate platforms and address excess capacity issues for the aging portfolios of the Fiat, Opel and Vauxhall brands. PSA also brings some innovations in the Autos 2.0 space, such as ride-sharing and electrification.

"FCA is far behind competition in e-mobility," Jürgen Pieper, automotive senior advisor at Bankhaus Metzler, wrote in an email. "PSA is at least OK."

Meanwhile, PSA plans to re-enter the rich North American retail market after leaving it in 1991 in the midst of a recession. The Peugeot brand would lead the company's introduction into Canada and the United States by 2026.

PSA has made one step into North America: It launched its free-floating ride-share service, Free2Move, last year in Washington, D.C. The service used Chevrolet Cruzes and Equinoxes, though it planned to use Peugeot models in the future.

The merger likely would not provide much support in China, the world's largest auto market. Both entered the market in the late 1980s, only a few years later to fold. Even though the companies have since re-entered the region, that still has left a bad taste in the mouth of Chinese customers, said Michael Dunne, CEO of ZoZo Go LLC, a Chinese electric mobility company based in Hong Kong.

"I see it as an opportunity to turn a new page for both automakers," Dunne said. "The industry is slowing in China. We can see consolidation on the horizon. They could combine their efforts to survive and thrive."

Fiat Chrysler and PSA have had a standing working relationship since 1981 when they opened together their Sevel plant in Italy. In February, the companies extended the cooperation agreement to 2023 and increased production capacity. The Sevel plant makes the Fiat Ducato, Peugeot Boxer and Citroën Jumper large vans as well as additional versions for PSA's Opel and Vauxhall brands.

PSA is present in 160 countries and possesses 16 production sites across the world. It traces its roots to 1810, when the Peugeot company began in the metal industry. It introduced its first gasoline-fueled vehicle in 1890. In 1976, Peugeot merged with Citroën SA, which launched its first vehicle in 1919. The combined PSA Peugeot Citroën became Groupe PSA — Peugeot Society Anonymous — a name that dates to 1966.

In 2018, PSA posted revenue of $82.2 billion. Fiat Chrysler's was $128 billion.

bnoble@detroitnews.com

Twitter: @BreanaCNoble

daniel.howes@detroitnews.com

Staff Writer Kalea Hall contributed.

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