After years of courting General Motors and Renault, Fiat Chrysler Automobiles has finally found a willing – and suitable – partner to settle down and merge with in the form of the PSA Groupe. Could this courtship be the match made in heaven or destined to be on the highway to hell?
On the balance sheet at least, FCA’s hopes the 50-50 merger with the PSA giant will create the fourth-largest automaker in the world by annual sales, with a combined sales of 8.7 million cars from FCA’s Fiat, Maserati, Alfa Romeo, Lancia, Chrysler, Jeep, Ram, and Dodge, alongside PSA’s Peugeot, Citroen, DS, and Vauxhall-Opel operations.
With their massive production capacity and sheer variety of vehicle platforms and powertrains, the two companies hope to achieve 3.7 billion euros in savings through product synergies and shared development over four years without axing any existing plants. On paper, at least the deal sounds like the sort of partnership that the late-Sergio Marchionne would have approved of.
More than that, as the valuations and products are tallied, it would seem that it would be a merger that Marchionne would have been proud of. FCA is set to be the biggest beneficiary from the deal as its aging product line-up is at risk of being outmoded by stricter incoming European fleet emissions regulations. A merger would allow FCA to access PSA’s more advanced platforms and powertrains, whilst PSA would be able to secure a foothold in the crucial North American market thanks to FCA’s American brands and dealership network.
FCA would also find the kindred spirit of Marchionne in PSA’s current head honcho, Carlos Tavares, who is tapped to head the merged entity. A former protege of Carlos “Le Cost Killer” Ghosn – the chief architect of the Renault-Nissan-Mitsubishi alliance – Tavares’ career wins of returning Peugeot-Citroen to profitability and orchestrating the acquisition of Vauxhall-Opel from GM and making it profitable is a near mirror of Marchionne’s achievements.
While the prospects of the creation of a brand new Latin powerhouse to challenge the dominant Volkswagen Group, Toyota, and the Renault-Nissan-Mitsubishi alliance excited industry observers and investors, many questions still loom over the viability of Tavares’ acquisitions and Marchionne’s lingering legacy.
The two companies have stated that it won’t close any of the 13 brands under its combined umbrella, nor shut down any of its factories, an optimistic statement that will do much to calm investors and avoid a potential workers’ union revolt. Should this plan carry on forward, the merged entity would have the devil’s own task of managing a collection of 13 brands, all of which are far from equal to one another. PSA’s brands, along with FCA’s Dodge and Ram brands, are not represented in the global market, whereas FCA’s Fiat, Chrysler, and Lancia are barely clinging onto relevance. Not to mention FCA’s haphazard sales strategy of products from its European counterparts in North America had seen sales tank.
Adding to that, much of PSA’s product portfolio is cantered towards Europe, with FCA’s strongholds being the native market of each respective brand. Outside these mature markets, both PSA and FCA products don’t have a firm foothold, particularly in China and the developing markets. As good as the clout the PSA-FCA merger would seem to wield, savvy observers have cautioned that “Alliances of the Weak” very rarely work. Instead of a single strong entity, the end result is often a bigger weak player with all the lumbering structural problems that ensnares massive enterprises without the limbering nimbleness of a small organisation.
Tavares’ golden touch in cost-cutting and execution on platform/product engineering might have returned profitability back to Peugeot-Citroen and Vauxhall-Opel, but to make these often overlapping and disparate brands competitive would require additional investment, not further cost-reduction from giants that have been employing similar strategies up to this point.
Cost-cutting, while an effective strategy in cutting away the accumulated bloat of years of careless financial management, inculcates a conservative mindset of preservation rather than fostering innovative product offensives. Marchionne’s dedication to stemming the financial hemorrhaging of Fiat has left the once-dynamic car maker being reduced to rehashing a classic icon, whereas Lancia and Dodge were hollowed out and left struggling with outdated offerings.
However, in moving the focus from being engineering-led to mere bookkeeping, cost-cutting strategies would threaten the long-term survival of the company, as a stagnating product portfolio poses as a drain on the unquantifiable aspirational value and brand prestige a company has. If anything, all the concerns about the future of cars in the rise of automation serves to highlight the fact that consumers still hold a very strong aspirational connection towards cars.
Compare the fate of the FCA brands under Marchionne’s leadership to the methodical engineering-led approach of Ferdinand Piech, who not only secured the fortunes of the companies he helmed but established the Volkswagen Group’s reputation as a forward-thinking conglomerate with a penchant for delivering desirable avant-garde products.
Even the once conservative Toyota, under the leadership of Akio Toyoda, has come to recognise the need to revolutionise themselves and overturn their staid image to address what Toyoda describes as a “once in a 100 years transformation”. Since then Toyoda has taken on financially risky projects that would have previously gotten canned, such as fast-tracking research into automation and enlargening the role of his Gazoo Racing pet project.
With Tavares just five years into the tenure at PSA, it remains to be seen if he would be able to steer both PSA and FCA from the shadows of Marchionne, and to an extent, set out from his own reputation as Ghosn’s protege. In a recent CAR magazine interview, Tavares is revealed to have an interest in racing and tinkering with his own cars. On top of that, he has a deep-seated personal understanding of the allure cars have the collective consciousness of society, rather than the archetypical grey-suited executive with a certification in finance that is increasingly pervasive in the industry nowadays.
More recently, PSA Motorsports has confirmed its entry into hypercar-class of the World Endurance Championship from 2022, marking a return to the sport that they unceremoniously stepped out from seven years ago. Initial signs are positive that Tavares is the sort of executive who is able to work that passion and desire into his running of the PSA-FCA giant, and if he succeeds in making it both profitable and desirable, the automotive industry may finally have a fitting end to the chapter on the era of Marchionne.