Fiat Chrysler Automobiles has been actively seeking a merger partner since September 2014. PSA/Peugeot-Citroen, which last month renamed itself PSA Group, is financially sound again, a pre-condition CEO Carlos Tavares said needed to be met before he would even dream about starting a conversation about a merger, alliance, cross sharing or any other such combination with another automaker.
Now the question is whether a French-Italian-American marriage in the cards? "No" was the answer Tavares gave when asked last month whether he had been talking to FCA. Meanwhile, FCA CEO Sergio Marchionne gave this reply: "We realized that even though there was a certain advantage in an association with PSA, it was an advantage that was too little and that in effect would limit the choices open to FCA going forward."
The possible combination of PSA and FCA has been a recurring rumor for years. The reason that the subject won’t die is because the deal makes sense on a number of levels.
A combined PSA-FCA would have sold about 7.7 million vehicles last year. That would have ranked it sixth behind Toyota, General Motors and Volkswagen Group, which sell about 10 million units annually, as well as Renault-Nissan (8.5 million) and Hyundai-Kia (nearly 8 million) but ahead of Ford (6.6 million). Marchionne worships at the church of volume because he believes it is the key to long-term survival. Tavares, meanwhile, recently told me that "volume can be the enemy of value." The CEOs would have to work out their differences here, which should be possible because each company has geographical weaknesses that the other could help fix.
With FCA, PSA would gain immediate access to the key U.S. market. This would be a lot faster than what PSA plans, which is a three-step re-entry over 10 years. FCA also is strong in Latin America where PSA is weak. PSA is strong in China where FCA, after many false starts, is just now starting to gain a foothold in the world's largest market with its Jeep brand.
PSA has a long tradition and a viable growth plan for Africa, where FCA is a non-player. India is a key market where FCA and PSA both have struggled, but the French automaker plans to try again, likely adding a plant by 2018.
FCA's platforms are outdated and not flexible or prolific enough, a problem that PSA could help solve. The two also could pool their funds to cover huge investments to add electrification, connectivity and self-driving capabilities to their future models.