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In the season of marriages, PSA-FCA and Isuzu-Volvo exchange vows

Murali Gopalan | Updated on December 20, 2019 Published on December 20, 2019

Car and truck makers are now pooling competencies to cope with mobility challenges

Wednesday brought two big-ticket marriages in the global automotive space.

One was more glamorous, thanks to the fact that it involved car brands in the form of Fiat Chrysler Automobiles (FCA) and Groupe PSA, the maker of Peugeot and Citroen. The other was no less important, with Isuzu deciding to buy out Volvo’s UD Trucks unit while teaming up for new technological initiatives.

By the end of the day, the commercial vehicle segment does not quite have the aura of passenger cars even while the fact remains that it the barometer of economic progress. Eventually, the wheels of the economy depend on the buoyancy of commercial vehicles.

FCA and PSA had already made known their intent to merge and Wednesday’s announcement marked the formal touch to this marriage. The two companies obviously know that it makes sense to join hands in a decade of disruptive mobility where huge investments will be needed in areas like electrification, autonomous driving, connectivity and so on.

PSA, which was down in the dumps less than a decade ago, has made an astonishing comeback and lately snapped up Opel and Vauxhall from General Motors. Yet, it remains to be seen if its Chinese ally, Donfeng, will still have role to play post the merger with FCA.

It was Dongfeng which played a big role in rescuing PSA but reports have been doing the rounds for a while now that the alliance is not quite working to plan. Further, PSA has not really made a dent in the Chinese market which is now in the grip of a slowdown.

Dongfeng will, in all likelihood, have little to do in the new PSA-FCA alliance, which means the partnership could gradually wither away. Going forward, the two new allies will give top priority to Europe and North America followed by Latin America and Asia-Pacific.

Impact on India

For now, India may not quite feel the impact of the PSA-FCA merger. Even while Fiat has been around for over two decades now, it is only in recent times that it has made a mark with the Jeep brand. And this has been made a reality following its global acquisition of Chrysler a decade ago, which gives it access to Jeep.

In the process, the Fiat brand has little to show for in India despite earlier successes like the Uno and Palio. It also remains to be seen how relevant it will remain globally following the PSA-FCA deal. It is not as if Fiat will be relegated to oblivion overnight but clearly brands like Jeep will remain priority in the new alliance.

As for PSA in India, the company will make its comeback with the Citroen brand (its earlier innings as Peugeot ended in an abrupt exit over two decades ago) that is due to debut only towards the end of next year. The merger with FCA could, in the coming years, throw up joint sourcing opportunities, common platforms and joint efforts in R&D and engineering.

Regional priorities

Moving to the next big announcement from Isuzu and Volvo, more details will emerge only in the coming months when regional priorities emerge as well as the areas where the two will collaborate. For now, Isuzu will acquire UD Trucks from Volvo and join hands with the Swedish truck maker on other technological initiatives.

As the statement from the company states, the alliance will include forming a technology partnership, which will leverage the parties’ complementary areas of expertise to create a larger volume base. It will endeavour to create the ‘best long-term conditions for a stronger heavy-duty truck business for UD Trucks and Isuzu Motors in Japan and across international markets’.

The two companies will also explore opportunities for ‘even broader and deeper collaboration’ within the commercial vehicle businesses across geographical areas and product lines, such as light- and medium-duty trucks.

In India and Asia, Volvo Trucks’ fulcrum is the alliance with Eicher Motors, VE Commercial Vehicles, which will cater to a host of global markets. The Pithampur facility in Madhya Pradesh has become a powerhouse for clean engines which are shipped out overseas. The sale of UD Trucks to Isuzu will give Volvo enough cash to leverage its position in emerging markets like India.

For China, Volvo is betting big on its relationship with Dongfeng even while another Chinese entity, Geely, has emerged the largest shareholder in the company with a near 10 per cent stake. It may be recalled that Geely bought out Volvo Cars over a decade ago and did not waste too much time in acquiring a stake in Daimler AG too.

Growing presence

As for Isuzu, it is a key player in the ASEAN region and is also keen to grow its presence in India. The Japanese automaker has a manufacturing facility in Andhra Pradesh but still has not quite made a significant impact.

After all, there is tough local competition to reckon with in the form of Tata Motors, Ashok Leyland, VE Commercial Vehicles etc. Whether the UD Trucks acquisition will help out with the Indian landscape remains to be seen.

The commercial vehicle segment also recently saw another big alliance in the form of Hino Motors (a Toyota subsidiary) and Volkswagen Truck & Bus, which has since been rechristened Traton. While announcing the intent to join hands a year ago, Yoshio Shimo, President & CEO of Hino Motors, said the automotive industry was facing a “massive, once-in-a-century transformation” where the rapid expansion of e-commerce and other businesses had created a shortage, as well as ageing, of drivers.

“Additionally, in rural areas, train and bus lines are being phased out and an increasing number of people is struggling with basic transportation needs. We cannot meet our customers’ demands by just providing the same value as we did in the past,” added Shimo.

This is where Hino Motors and VW Truck & Bus share “this sense of urgency” and were committed to taking a lead in providing solutions for customer needs. Andreas Renschler, CEO of VW Truck & Bus, agreed with this view saying that the changes in the transportation industry come along with a need for further investments and technology capabilities.

“We are convinced that by joining our forces to tackle these challenges, we will be able to turn challenges into chances and create additional value for our customers as well as for our owners,” he said.

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Published on December 20, 2019
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