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Christening done, PSA and FCA now on the fast track to wrap up merger

Murali Gopalan | Updated on July 16, 2020

With Chairman Carlos Tavares playing a key role in the revival story, PSA is now well equipped to handle the merger with FCA   -  REUTERS

Stellantis is the new corporate brand for the European car allies

The timing could have been a coincidence but the christening of the Peugeot-Fiat alliance happened just 10 days before the second death anniversary of Sergio Marchionne.

The former CEO of Fiat Chrysler Automobiles (FCA), who passed away on July 25, 2018, was a huge advocate of consolidation in the automobile sector and would have doubtless been pleased with the Italian automaker’s French ally.

Groupe PSA, the maker of Peugeot and Citroen brands, also has Opel and Vauxhall in its product portfolio. Now, in tandem with FCA, Stellantis, as the new corporate brand is called, will take the story forward.

Marchionne is still remembered for the masterstroke move in helping Fiat snap up Chrysler over a decade ago. This was the time when Detroit, the epicentre of the American automobile industry, collapsed like a pack of cards during the global slowdown of 2008-09.

New FCA entity

As Chrysler was gasping for survival, Marchionne clearly saw this as an opportunity for Fiat to throw a lifeline, acquire the iconic brand and thereby become stronger in the process. The script worked according to plan and the new FCA entity that emerged has grown from strength to strength over the years.

Yet, Marchionne believed that more needed to be done and this was when a merger offer was made to General Motors. Nothing came out of it eventually even while he constantly maintained that further consolidation was an imperative in the automobile industry if it had to survive.

Perhaps this was a way of keeping stronger Chinese brands at bay especially when reports began doing the rounds that Great Wall Motors was keen on acquiring FCA’s Jeep brand. These were dismissed as being speculative even while auto industry observers maintained that there was no smoke without fire, at least from the Chinese side.

New chapter for PSA-FCA

Fast forward to the present and Stellantis marks a new chapter for PSA and FCA. The merger proposal was announced last year and even while challenges in the form of Covid-19 may have emerged, the partners are clearly keen on taking the story forward.

The joint press release issued on Wednesday states that the partners will “combine the scale of a truly global business with an exceptional breadth and depth of talent, knowhow and resource capable of providing the sustainable mobility solutions for the coming decades”. Additionally, the name’s Latin origins pay tribute to the “rich history” of its founding companies while the “evocation of astronomy” captures the true spirit of optimism and energy. The next step will be the unveiling of a logo even while the brands under the PSA and FCA umbrellas will remain unchanged.

The companies have reiterated that the merger will be done by the first quarter of 2021 which will pave the way for some interesting mobility breakthroughs during the course of this decade. Marchionne may have had consolidation on his mind but the aftermath of Covid-19 will be even more profound for automakers across the world. With battered balance sheets and ancillary suppliers also in dire straits, it is only the strong and focused that can manage the turbulence expected to prevail through 2021-22 and perhaps thereafter. It was bad enough that the global economy was already floundering when Covid-19 struck and ensured that it remains in the dumps even longer.

It is in this backdrop that the PSA-FCA merger makes so much sense especially when it means pooling in competencies and investments. The need of the hour, going forward, is a de-risk strategy and here is where two heads will be better than one.

PSA’s Chairman, Carlos Tavares, has spearheaded the transition within the group where acquisitions like Opel and Vauxhall would have been inconceivable even five years ago. This was the time the French automaker had its back to the wall as the global slowdown began to spread its tentacles.

PSA reached out to GM for some kind of a survival alliance which was of little help till Dongfeng Motor of China emerged as the knight in shining armour. Along with the French government, Dongfeng is now a key stakeholder in PSA even while the latter’s China foray has been little to write home about.

With Tavares playing a key role in the revival story, PSA is now well equipped to handle the merger with FCA. It can derive confidence from the Opel and Vauxhall acquisitions where the synergies with PSA are working well thus far.

It will take a while for countries across the world to bounce back post-Covid and consumers feel financially secure to buy cars all over again. Yet, the fact remains that personal mobility will be top priority especially with the paranoia that Covid has unleashed all around.

How the combined strengths of PSA and FCA work in tandem to meet new challenges and opportunities will be the biggest challenge in the coming years. Even while the pandemic will have bruised the bottomline of all carmakers, governments in Europe are not likely to offer much leeway on emission norms.

The auto industry will need to invest more on electric programmes where the returns will be slow in coming. This is where individual strengths need to be leveraged in a partnership and PSA-FCA will have their work cut out in constantly pushing the envelope.

For now, PSA is quite upbeat going by the sales figures released in June when the pandemic is still raging across the US, Brazil and India. “Our teams are on a recovery mode in this critical period and fully committed to spur profitable sales. In parallel, our monthly CO2 committee ensures that we respect our ethical commitment towards European CO2 targets,” said Tavares.

Green drive

Groupe PSA is also launching a electric innovative mobility object, Citroën Ami - 100 per cent electric, and has put to the market 13 new electrified models. This global strategy is in line with the Group’s roadmap to offer a 100 per cent electrified range from 2025, of which 50 per cent will be electrified by the end of 2021.

The French automaker has added that its India plans are on track as it “continues to prepare for the introduction of the Citroën Brand in the first semester 2021”. This will happen with the C5 Aircross SUV, to be followed by “new and disruptive” Citroën models designed locally.

It will be interesting to see how the merger with FCA will impact India where both brands will have to reckon with formidable rivals, largely from Japan, Korea and, more recently, China. FCA has had a long association with its Fiat legacy going back to the 1950s. Even after the Indian economy invited investments from MNC car companies as part of its reforms process, the Italian automaker did not quite live up to expectations.

Quite unlike unfamiliar brands like Hyundai which were trying to make a connect with Indian customers, Fiat had no such recall issues. Yet, it could not capitalise on this obvious advantage and frittered opportunities away.

New avatar

Today, in its new avatar as FCA India, there is clearly an intent to make the most of the SUV momentum where its Jeep brand will lead the offensive. The Compass was the first offering and even while it started off well, the competition coming in from the likes of Hyundai and Kia, in particular, is intense and growing.

PSA, likewise, had a disastrous first innings in India where it exited in 1997, less than four years after starting operations at the Kalyan plant near Mumbai. It now has big plans with the Citroen brand in a Chennai facility but the going will not be easy with established players like Suzuki and Hyundai with Kia now the more recent and aggressive entrant.

Carmakers know that the India play will call for a lot of patience and tremendous effort in creating a competitive cost structure for among the most price-sensitive markets in the world. Yet, the opportunities are immense and the key is to use the manufacturing competencies here to service other global markets.

Even if PSA and FCA team up more aggressively at the back-end in India, they will have to reckon with similar partnership models emanating from Toyota-Suzuki, Renault-Nissan, Hyundai-Kia, Mahindra-Ford and the like. It will be an interesting tug-of-war where Stellantis will need all its skills to take on this level of competition.

Published on July 16, 2020

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