The gradual decline in auto sales since 2009 has pushed many auto-manufacturers to make significant changes in their business strategies including Swedish company, Volvo, agreeing to sell its UD Trucks business in Japan to Isuzu Motors for about $2.3 billion in order to share technology and reduce costs. Even at the vast amount of over $2 billion dollars, there was an even bigger exchange in December 2019 with the beginnings of a merger between Italian/American Fiat Chrysler and French PSA-owned company Peugeot to create a mega-auto company valued at almost $50 billion.
Family Matters
The new company’s price tag of billions is not the only significant change in the auto-industry, but also a merge between two global car maker dynasties between the Italian-American Agnelli family and the French Peugeots who built their first vehicle 130 years ago. In fact, John Elkann who has blood ties to the Fiat’s Agnelli will be the chairman of the joint company and the Peugeot family still has stakes in PSA.
The deep national roots also played a part in the merger. The new company’s CEO, Carlos Taveres, said that each company’s brands such as Jeep, Ram, and Doge as well as Opel, Vauxhall, and Citroen will be staying in their respective countries, changing only the manufacturing process. The company, which has yet to be named, also promises that there will be no job cuts – keeping 400 000 jobs around the world.
The global politics of this deal are many and Chinese carmaker, Dongfeng Group, reduced its stake in Peugeot from 12.2% to 4.5% to make the deal more appealing to US regulators.
Why Fiat Chrysler and Peugeot Merged
Fiat Chrysler looked to PSA for the company’s low-emission technology and offered an opening into the lucrative American market. The 50-50 merger, which will be completed within 12-15 months, will save both companies about $4.1 million through sharing resources. Bound together as one, the two companies, which sold a combined 8.7 million cars the previous year, earned a spot in the Top 3 of the largest global auto-makers beating General Motors and creating a strong competitor against Germany’s Volkswagen and Japan’s Toyota that sold about 10 million cars each the year before.
Through their deal, Fiat Chrysler and PSA expect an estimated $190 billion in revenue with new innovations – an amount that is hard to resist.
A Complicated Journey to a Greener, Richer Future
This massive consolidation between two historical auto-maker giants will make waves in the global industry, a task that Taveres knows he will have to maneuver through with so many other global leaders to appease. Because this deal was made to save costs and increase revenue for both companies, it’s difficult to see how the company won’t cut jobs. Especially in Canada, which has the skilled labor and infrastructure to produce Chrysler vehicles, but the price for electricity is much higher than other areas.
Everyone’s hope is that all parties benefit from this merger, especially customers seeking electric vehicles and industries investing in self-driving technology.
