FRANKFURT -- Fiat Chrysler Automobiles and PSA Group have said they will not to close factories if they merge but this promise is likely to come under heavy strain as the combined group would have spare production capacity of almost 6 million vehicles in a slowing autos market.
The companies last week unveiled plans to create a $50 billion (£39 billion) group that would leapfrog Hyundai, General Motors, Ford and Honda to become the world's No.4 automaker, based on their combined 8.7 million vehicles sold last year.
FCA and PSA would have potential manufacturing capacity of 14 million vehicles, forecaster LMC Automotive said. But the industry has entered a downturn and the European small-car market in particular, where both PSA and FCA are heavily exposed, is under pressure.
"The utilization rate would be low at 58 percent, which would leave the group with almost 6 million units of spare capacity worldwide," LMC Automotive said. "Europe is likely to bear the brunt of any potential plant closures."
Low-volume manufacturing plants in Europe are increasingly vulnerable, such as Fiat’s factory in Kragujevac, Serbia, and PSA's Vauxhall plants in Ellesmere Port and Luton, England, LMC said.
Labor unions and politicians have already voiced concerns about job losses, and both France-based PSA and Italian-American FCA have ruled out factory closures in an attempt to quell fears.
But a deadline to meet 2021 and 2025 emissions goals in Europe adds pressure on FCA to adopt PSA's more efficient engines, calling into question some of FCA's engine plants in Europe, mainly in Italy, as well as in Poland, in particular.
FCA’s Fiat, Lancia and Alfa Romeo brands currently source their engines from plants in Termoli and Pratola Serra in Italy, as well as the Bielsko-Biala plant in Poland.
"In terms of engine plants, it is likely that in the long term, one or two FCA plants in Europe would no longer be needed," LMC said.
PSA has major engine manufacturing operations in Tremery and Douvrin, France, and has also retooled a former GM factory in Szentgotthard, Hungary.