Howes: FCA-PSA built around trucks, SUVs could be 'Jeep Inc.'

Daniel Howes
The Detroit News

Fiat Chrysler Automobiles NV's legendary CEO, Sergio Marchionne, hungered to eat that thick American porterhouse doing business as General Motors Co. He failed.

His successors — backed by the vision of Chairman John Elkann, a strategic disciple of ol' Sergio — instead are settling for a smaller steak in Peugeot parent Groupe PSA of France. At current sales trends, the combined group would outstrip Detroit's No. 1 automaker, but would be smaller than the proposed 13-million-unit FCA-GM colossus Marchionne pursued before his death two summers ago.

The board of Peugeot cars maker Groupe PSA unanimously approved a merger with Fiat Chrysler Automobiles NV that would create the world’s fourth-biggest automaker by annual volume.

FCA and PSA confirmed Wednesday they are moving forward with plans to create the world's No. 4 automaker, theoretically vaulting the global volumes of GM and Ford Motor Co. in a deal that would elevate the standing of Detroit's No. 3 automaker to its No. 1, for whatever that's worth.

This is no surprise. Despite steadily rising profitability and margins powered almost exclusively by the enviable Jeep and Ram brands, FCA has been for sale in one way or another since Marchionne five years ago consolidated control over the group by acquiring Chrysler shares from the United Auto Workers' Retiree Medical Benefits Trust. 

The only questions: how and who? Scale has been a desirable strategic asset in autos ever since Henry Ford and GM battled for market leadership in the early parts of the last century. It's even more important today as automakers with global aspirations drive separate but parallel roads: namely, generating cash from profit-rich trucks and SUVs sold to North Americans to invest in next-generation electric vehicles and related technology.  

GM spurned multiple proposals between 2012 and 2015. Volkswagen AG emerged as a suitable replacement until its costly Dieselgate scandal slapped the German automaker with a scarlet "V" and billions of dollars in fines. Serial dalliances with the Renault-Nissan alliance (during and after the generation-long Carlos Ghosn era) failed, the most recent earlier this year thanks to meddlesome French bureaucrats.

Enter PSA led by Carlos Tavares, the newest darling of the global auto club. He would be CEO of the yet-to-be-named entity promising three headquarters in three countries, zero plant closures on two continents and a whole lot more employees than automakers of similar size. The makings of an earnings juggernaut? Meh.

A little perspective: GM employs 180,000 people producing 8.4 million units worldwide. The combined FCA-PSA would boast roughly 400,000 employees producing 8.7 million units annually — hardly the model of efficiency such transcontinental combinations are supposed to produce.

No wonder analysts are skeptical, whatever their bullishness for Tavares. He's hot because he a) revived the fortunes of PSA with a lot less trauma to the collective Gallic psyche than "Le Cost Killer" Ghosn. His slashing of Renault assets a generation ago scandalized French pols willfully blind to the Darwinian rites of modern automotive restructuring.

And b) because Tavares bought the Opel and Vauxhall brands and associated engineering operations from GM in 2017. In less than two years, he turned GM's chronic money pit (with a roughly 20-year record of consecutive losses) into a profitable German automaker under, ahem, mostly non-German management.

And c) because Tavares understands that he can't build a global automotive powerhouse tethered to Paris without the profit factory that is the pickup and SUV business in the United States and Canada. The Golden Goose in the prospective Franco-Italian-American mash-up isn't Europe or China; it's the Jeep and Ram business in North America.

Where else could he find that? Not at GM, which is on a decidedly go-it-alone trajectory under CEO Mary Barra. Not at Ford Motor Co., whose founding family has scant interest in subsuming its rights and the Blue Oval's brand prestige to such an endeavor. Not among major Japanese players operating in the United States with wanna-be pickup and SUV lines — players (see Toyota and Honda) whose leaders demonstrate zero strategic interest in joining Tavares.

FCA with its Ram and globally resonant Jeep brands is the only play that gets Tavares and PSA where they need to be: tapped into a North American earnings machine that can fatten thinner margins earned in Europe and Latin America, can build a business in China, and can generate cash to invest in next-generation electrification demanded by regulators.

In their presentation Wednesday, the companies touted their would-be brand portfolio, their geographic distribution, their strategic alignment and the strong balance sheet they would create assuming their merger is consummated a year or more from now.

And Tavares used the opportunity to reassert his confidence in FCA as a partner, despite the landmark civil racketeering lawsuit from rival GM that accuses Marchionne of bribing United Auto Workers leaders to increase GM's costs and weaken its business to force the merger he so badly wanted.

"We have obviously done our due diligence," Tavares said on a conference call, according to The New York Times. He would, of course, because whatever cost — if any, beyond paying the lawyers — FCA incurs fighting the GM allegations and subsequent discovery are outweighed by the strategic goldmine PSA stands to access in Jeep and Ram. 

That's because there is nowhere else to go but Auburn Hills. Which raises a question the automakers are working hard to answer: what to call the combined company. Given the industrial logic driving it, "Jeep Inc." sounds just about right.

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Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.