After their merger, Fiat Chrysler and PSA will share their technical expertise to make pathbreaking products that demand high infrastructure and automation.
As the global automobile industry is undergoing a transitional change, two big auto giants have announced a merger. On Wednesday, December 18, automobile giants Fiat Chrysler and Peugeot maker PSA revealed a massive $50 billion merger.
With the auto industry eyeing a massive shift towards electronic vehicles, manufacturers are facing the heat of rising infrastructure costs. To alleviate these concerns, and move ahead confidently with new innovation, these companies have now joined hands. As a result, the merged entity will have an effective valuation of $50 billion with the all-stock transaction.
Thus, this joint venture will surpass American automobile giant Ford Motor company while simultaneously challenging the German automobile giant Volkswagon AG. Besides challenging the existing heavyweights, this strategic partnership has other benefits as well.
Both the companies will be sharing their technical expertise to help the other. For e.g. PSA will offer Fiat its low-emission technology, a region wherein Fiat has been struggling off lately. Simultaneously, PSA will also get major exposure to the North American market while Chrysler will get to put its foot in the oversaturated European market.
Note that this is not Chrysler’s first attempt to enter the European market. Two decades back, Chrysler joined hands with Mercedes parent Daimler AG, however, that couldn’t sustain far. Thus, it is the second time this American automobile giant is joining hands with its European counterpart.
The plans for this merger were disclosed nearly 2 months ago. But two companies – Fiat Chrysler and Peugeot – have yet not finalized the name for the merged entity. Moreover, the entire process of the merger will take 15 months subjected to pending approvals from regulators and shareholders. Both – PSA Chief Executive Officer Carlos Tavares and Fiat Chairman John Elkann will have the same leading roles.
Planned Savings and Strategies
During their discussion for the merger, both the companies expected a massive 3.7 billion euros of annual cost savings. These cost savings will be across different activities of product development, manufacturing and purchasing, and also the transition towards electric vehicles.
Speaking to the reporters on a call, Tavares said:
“The challenges of our industry are really, really significant. The green deal, autonomous vehicles, connectivity and all those topics need significant resources, strengths, skills and expertise.”
On the other hand, China’s Dongfeng Motor Group will trim its share in PSA before the merger is completed. Currently, Dongfeng holds a 12.2% stake in the French carmaker. Thus, by selling its 30.7 million shares worth 680 million euros to PSA, it will reduce its stake to 4.5% in the newly merged entity.
It will be good to see how these two automobile giants work together to overcome the mammoth challenges of the industry. The merger of the two giants is likely to give a new direction and push new innovation in the automobile sector.
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