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Analysis: the numbers behind the FCA and PSA merger



Despite being highly profitable, FCA has been chasing a merger ever since its previous CEO, the late Sergio Marchionne, warned in his 2015 treatise ‘Confessions of a Capital Junkie’ that car makers had to consolidate in order to have any hope of controlling spiralling development costs. FCA have since been rebuffed time and again, most recently after talks with Renault collapsed earlier this year.

Now, just over a year after his death, Marchionne’s dream has been realised. By sharing technology and platforms and pooling other resources, the companies will eventually make combined annual savings of €3.7 billion (£3.2bn), the two said in a statement.

This figure could be achieved without shutting factories, the statement said – something PSA has proved it can do after successfully turning around GM’s loss-making Vauxhall-Opel division.

The barriers to success are huge. FCA might be profitable but, of the €7.3bn (£6.3bn) it made last year in pre-tax profits, €6.2bn (£5.3bn) was made in the US thanks in the main to demand for Ram pick-ups and Jeep SUVs. The company struggles in Europe, where demand for its core Fiat brand is too heavily dependent on sales of the lower-margin 500 and Panda city cars. It also fails to make serious money from its storied but underfunded premium brands, Alfa Romeo and Maserati.

PSA could quickly fix Fiat in Europe, argues Felipe Munoz, a global analyst at Jato Dynamics. “FCA could make use of the new 208/Corsa platform to re-enter the supermini segment with a new Punto,” he said. A new Tipo could then follow on the Peugeot 308 platform.

A bigger problem is FCA’s industrial base in Italy, where it has an astonishing 27 manufacturing facilities for vehicles and parts. Over-staffing in underfunded factories running far below capacity is a serious problem that will take all of Tavares’ skill to negotiate. He won praise in the UK for – so far – managing to keep Vauxhall’s two plants running while still returning Vauxhall/Opel to profitability, and Italian unions are seeking assurances that the same can happen in Italy, where Fiats, Alfas, Maseratis and smaller Jeeps are built.

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