FCA and PSA announce a merger that will form the world’s fourth-largest car manufacturer

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Updated on Mar 11, 2020
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  • Italian-American FCA, and French PSA, announced a merger that will form the world's fourth-largest automaker.
  • The $50 billion merger will see the two companies attempt to cut €3.7 billion in annual costs without closing factories.
  • FCA and PSA sold a total of 8.7 million vehicles (combined) in 2018. The combined manufacturing capacity is 14 million vehicles per year.
  • The merger will help manufacturers cope with the rising costs and falling global demand.

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Two of the European largest auto manufacturers, PSA and Fiat Chrysler, announced on Tuesday that a binding agreement has been signed between the two parties. The merger valued at $50 billion is expected to create the fourth largest car manufacturer in the world.

FCA And PSA To Cut €3.7 Billion In Annual Costs Without Closing Factories

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The 50-50 tie-up (all-share) was indicated six weeks ago. As per the sources, the merger is yet to announce a name for the newly formed automaker. Following the merger, the Italian American FCA (Fiat Chrysler Automobiles) and French PSA will work together in achieving the goal of cutting €3.7 billion in costs on an annual basis. The two companies have expressed confidence in hitting the target without having to close factories across the globe.

As per the analysts, however, it is likely to be a tough job for the FCA and PSA merger since labor unions in Italy as well as in France are strictly against laying off workers. The combined entity will also have to rely heavily on horse-trading in deciding the technologies that will debut in the upcoming vehicles as well as the global R&D (research and development) centers which will stay in business in the upcoming years.

According to the companies, a period of 12 to 15 months will be required to close the deal during which period, a name will be announced for the combined entity. LMC Automotive also highlighted on Tuesday that the two companies have sold a total of 8.7 million vehicles (combined) in the past year. The combined manufacturing capacity, however, is as high as 14 million vehicles per year.

Merger Will Help Manufacturers Cope With Rising Costs And Falling Demand

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Experts also opinionated that the merger will help both manufacturers cope with the rising cost of meeting the stricter emissions regulations while avoiding financial challenges driven from the falling global demand for automobiles.

Specifics of the merger such as the car platforms that are likely to be focused or the strategies for tackling excess capacity have not been divulged at this stage.

Following the announcement of the merger, FCA stock was seen trading 1.7% higher while PSA hiked by 4% during the early session. The year-to-date performance for both companies in the stock market has remained almost flat on average. FCA started the year at €12.57 per share and is currently trading at €13.62. PSA, on the other hand, was reported trading at $195 in January 2019. The stock is currently exchanging hands at $205.

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