MILAN -- Fiat Chrysler Automobiles would gain much-needed scale and technology by getting access to PSA Group’s platforms for passenger cars and crossovers if a merger of the two automakers goes head.
FCA sells more vehicles than PSA but it has been seeking a partner for several years, dating back to late CEO Sergio Marchionne's failed courtship of General Motors.
FCA's global deliveries were 4.8 million last year, while PSA sold 3.9 million vehicles. FCA's main strength is in North America, where it sold more than 2.5 million units in 2018. PSA is heavily dependent on Europe where it sells 80 percent of its vehicles.
FCA's platform and powertrain sharing across its three main regions – North America, Europe and Latin America – is marginal but in Europe FCA would benefit from PSA's modern architectures for small and compact cars.
The Fiat brand has been starved of product and its European market share has fallen to 4.3 percent with most of its sales in its Italian home market.
The brand currently sells only the 500 and Panda minicars, the 500L small minivan, 500X small crossover and the Tipo compact car. The Punto, which competed for market leadership in the small-car segment until a decade ago, was discontinued in 2018. It could be resurrected on a PSA platform.
Bernstein analyst Max Warburton said Europe would be a key focus for a merged FCA and PSA.
PSA's r&d resources and cutting-edge lightweight platforms "could revitalize Fiat’s tired product range," he said in a note to investors. "Sub-scale" product lines, powertrains and future EV investments could be combined, he said.
Products and brands might be rationalized and distribution networks combined, Warburton said. "The task would be huge, the politics messy and lots would probably go wrong on the way," he said.
Fiat's Italian operations have overcapacity. Its Mirafiori assembly complex in its home city of Turin has run below 50 percent capacity, with thousands of workers on temporary layoffs.
Overall, Fiat has 58,000 workers in Italy, where the government has long resisted mass lay-offs by large employer
On Wednesday the Italian trade union UILM said any tie-up between FCA and PSA must be a "merger of equals" that leads to no job losses in Italy. The FIOM union said a deal should guarantee full utilization of the Italian factories.
Joining forces with PSA would help FCA to catch up in new technologies such as electrification and autonomy where it has fallen behind rivals and is under growing pressure to increase investments.
The company disclosed earlier this month that it faces a $79 million fine for falling short of U.S. fuel efficiency standards. It has agreed to pay U.S. electric car maker Tesla for credits to help it comply with European emissions standards until 2022.
FCA CEO Mike Manley said earlier this year FCA aims to recover 60 percent of the additional vehicle electrification costs through pricing; sharing those costs with a partner will help reduce the bill.
In Europe FCA could help PSA to build up sales of high-margin, upscale cars. PSA's upmarket DS brand, originally a subbrand of Citroen, has failed to make an impact on European buyers.
FCA could offer PSA its Giorgio rear-wheel-drive/all-wheel-drive architecture created for the Alfa Romeo Giulia midsize sedan and Stelvio midsize SUV. Manley said this year the Giorgio architecture would also become the base for a future range of Maserati models.
FCA's Jeep SUV brand and Ram pickups would boost Peugeot's plans to relaunch in the U.S. PSA CEO Carlos Tavares said earlier this year that Peugeot would be returning to the U.S., which it exited in 1991, in 2026.
Reuters and Bloomberg contributed to this story