Why the PSA deal is so attractive to the Fiat heirs

In the middle of the Corona crisis, a debate arises about a special dividend worth billions for Italians. But company president Elkann remains tough. Meanwhile, new opportunities could arise for Opel.

The merger, which was agreed between automakers Fiat-Chrysler and PSA at the end of October 2019, should be completed by the first quarter of 2021.

Dhe current largest merger in the automotive industry will be overrun by the virus crisis halfway: the merger, which was agreed between the automakers Fiat-Chrysler (FCA) and PSA (brands Peugeot, Citroen, Opel) at the end of October 2019, should be completed by the first quarter of 2021 . The terms and benefits of the merger are now being scrutinized again in public, especially by voices on the French side who are once again calling for improvements to be made in favor of PSA.

Fiat-Chrysler President John Elkann is now challenged. Elkann commented on the demands from France: “The contracts are set in stone”. For him this means that he does not want to accept any changes. At the same time, Elkann still has to ask himself whether the merger still makes as much sense as in autumn 2019 and whether the benefits for both sides have remained the same.

The French car group is in a much better position on the European car market than Fiat-Chrysler, with a more modern model range that is primarily based on two platforms. These technical similarities reduce costs, and profitability for new electric drives or “plug-in hybrids” – cars that can cover short distances of 30 to 50 kilometers with electricity and the rest with combustion engines is achieved more quickly. PSA sold 885,000 cars in Europe in the first half of the year, after sales of 3 million vehicles in 2019. Fiat-Chrysler only delivered 312,000 vehicles in Europe in the first half of 2020, less than half of the previous year. In 2019, Fiat-Chrysler had sold 1.2 million cars in Europe.

Too little invested

A look at the European market reveals all of Fiat-Chrysler’s weaknesses, which have become even greater in recent years: the model range is outdated, there are only two individual showcase projects for an electric car and two jeeps with plug-in hybrid drives. Too little was invested in the individual brands, especially not with long-term, coherent concepts. Fiat itself was presented at an analyst conference in 2010 as a manufacturer of practical or cheeky youthful cars. Four years later, the brand was no longer worth mentioning to the then CEO Sergio Marchionne. The traditional brand Lancia, which in the early days of the car stood for dignified luxury and many innovations, is as good as dead.

At the moment she only lives on with the four-door Ypsilon microcar based on the Fiat 500. Lancia had been made sporty against the nature of the brand with rally world championship titles, before Fiat then took over the Italian sports brand par excellence in 1987 – Alfa Romeo. The investments for the models and the Lancia brand were then thinned out more and more. But the potential of the Alfa Romeo name also remained untapped. In 2014, investments of 5 billion euros were promised for eight new Alfa Romeos, which should be presented by 2018 and increase annual sales to 400,000 units. In the sad reality, there were two new models and a quarter of the targeted sales figures.

Image: FAZ

But at least outwardly, at Fiat-Chrysler, such representations are shrugged off. In any case, it was not the European auto division that generated profits in the group in recent years, but only the North American business with the off-road vehicle brand Jeep and the oversized pick-ups and off-road trucks of the Ram brand, which are not available in Europe. Fiat-Chrysler sold 2.4 million vehicles in North America alone in 2019, with an operating profit of 6.7 billion euros. In the first half of 2020 only 700,000 vehicles were sold due to the virus crisis in North America, and North America was the only continent in the group that did not post a loss, but achieved an operating income of 587 million euros. Fiat-Chrysler is now hoping to overcome the crisis quickly with the rapid recovery of the market that is typical of the United States.