Fiat Chrysler and Peugeot shareholders vote to merge, creating world’s fourth largest automaker

With crushing margins, shareholders of Fiat Chrysler Automobiles and parent group Peugeot PSA on Monday morning approved a $ 58 billion merger creating the world’s fourth largest automaker, Stellantis.

The deal concludes FCA’s search for a partner decadelong, after the automaker was previously rejected by rivals such as General Motors and Volkswagen. Officials suggested the merger would result in billions of dollars in annual savings while also helping Stellantis accelerate the development of electric and autonomous vehicles that are expected to transform the auto industry over the next decade.

But there will remain many challenges, starting with a double-digit drop in global car sales last year due to the coronavirus pandemic. As Stellantis, meanwhile, there could be significant pressure to ditch some of the new company’s weaker brands, including Fiat and Chrysler, FCA’s namesake.

“Stellantis will be a sort of conglomerate of brands, some excellent and some not so good and most very regional,” said Philippe Houchois, analyst at Jefferies. The list also includes Jeep, Ram, Dodge, Maserati and Alfa-Romeo on the Fiat Chrysler side, as well as Peugeot, Citroën, DS, Opel and Vauxhall. “The merger,” Houchois added, “will be a good opportunity for a reset.”

In separate online votes, the merger was approved by 99.15% of FCA shareholders and 99.85% of PSA investors.

The decade-long research was started by former FCA CEO the late Sergio Marchionne, even before Fiat completed its own merger with Chrysler. The Detroit-based automaker was threatened with bankruptcy when then-President Barack Obama approved a federal bailout only after Fiat agreed to become Chrysler’s White Knight.

Marchionne’s efforts to find another partner have been repeatedly rejected. It wasn’t until the CEO’s unexpected death in July 2018 that his successor, Mike Manley, finally lined up a potential partner. But this agreement with the French Renault collapsed at the 11th hour.

Unexpectedly, Manley announced another deal a few months later, this one with Renault’s rival Peugeot. Chrysler’s ties to Peugeot go back decades, and industry analysts have seen many synergies in the deal. For one thing, the two automakers each have gaps in their lineup that the other can fill. The same is true geographically. PSA, for example, has looked for ways to re-enter the US market after a three-decade absence. But it is strong in China, where Fiat Chrysler has only a modest presence.

The partners set difficult goals for themselves before the final phase of their negotiations. Early on, officials estimated that they could achieve savings of 3.7 billion euros, or $ 4.5 billion, from various savings. They then increased that number to just over $ 6 billion.

But the pandemic has made forecasting activities, whether it be unit sales, revenue or profit, extremely difficult. And analysts expect it will take close to the middle of the decade for global sales to approach pre-pandemic levels. This could make it difficult to achieve these goals.

Stellantis will face many other challenges. FCA and PSA have each fallen behind in developing technologies that are supposed to revolutionize the industry over the next decade. The new automaker will be under pressure to increase its spending on autonomous and electrified vehicles over the next few years. On the battery car side, Stellantis will have to catch up with the main competitors who are leading the way to market electric vehicles.

Under the deal, FCA President John Elkann – heir to Fiat’s founding family – will retain his title at Stellantis. It will be the same for Carlos Tavares, the very famous CEO who is credited with the recovery of the French company since his arrival six years ago. Significantly, PSA was able to put the Opel / Vauxhall unit in the dark less than a year after acquiring the Germany-based operation from General Motors. Under GM, Opel had been in the red for almost two decades.

Until last month, it was unclear what would happen to FCA CEO Manley. He will now serve as Stellantis’ Chief Operating Officer in the Americas. Among its challenges will be the phased rebirth of the Peugeot brand in the United States and Canada.

Manley, like her mentor Marchionne, is a firm believer in scale. FCA was the world’s eighth automaker in 2019, PSA the ninth. Combining their fortunes together would propel them to fourth in vehicle sales – ahead of the long-dominant General Motors, but behind Volkswagen, Toyota and the Renault-Nissan-Mitsubishi Alliance.

But with the industry hammered by the coronavirus pandemic, not to mention a wave of new competitors such as Tesla, it’s far from certain that size alone matters as before.

“The auto industry has been looking for size and consolidation for years, but it has been slower to come than many would like to see,” Jefferies analyst Philippe Houchois wrote in a note to investors. “The question is whether GM, Toyota and Renault-Nissan have provided evidence that there may be limits to this strategy.”