PSA – FCA Merger: Intensifying Development of B-segment BEV Sold Below 2 Million Japanese Yen

Editorial At the end of October 2019, PSA and FCA announced that they had agreed to a 50:50 business integration. A senior official of the French government which owns 12.3% of PSA shares (ratio of voting rights: 9.75%) also issued a statement to support the integration. The integration of the two companies will create the world’s fourth-largest automobile manufacturer after VW, Renault / Nissan / Mitsubishi and Toyota in terms of global sales. European and US media regard this integration as “a good combination that complements each other in terms of market, brand and segment structure.” However, many view it as a “weak alliance” in terms of technical capabilities of both companies. Pursuing sales volume is not as meaningful as before. Still, the alliance can have certain effects on parts procurement, development and production cost. According to the joint statement of PSA and FCA, “the alliance will generate a synergy effect of about 3.7 billion euros a year without closing any plants.” In particular, a certain financial scale is needed to deal with new fields such as CASE. That is why loose development alliances have been formed in various parts of the automobile industry, even without management integration. This time, PSA and FCA decided to integrate rather than tie-up because PSA wanted to break away from excessive European dependence and FCA wanted to reduce the average CO2 of its European fleet. In 2018, the European market accounted for 80.1% of PSA’s total sales (on a unit basis). However, the too much reliance on Europe is dangerous because of poor market growth and stricter environmental regulations. Although PSA withdrew from the North American market in the 1990s, Carlos Tavares (CEO) has made a commitment to return to the North American market since assuming office in 2014, with the goal of returning by 2026 at the latest. FCA’s dealer network of about 2,640 stores in North America lowers PSA’s hurdle to realizing its target. FCA has a 12.4% market share in South America which is complementary to PSA in other parts of the world. The European market share of the alliance will be roughly 51.9% improving their share.

---