Fiat Chrysler Automobiles (FCAU:NYSE) announced recently that it is entering into a 50-50 merger with PSA o enhance competitive advantage. If plans are implemented, the merger will build the fourth largest automobile company in the world.
However, the move has raised concerns with Vauxhall, the owner of PSA, which could be forced to restructure and reduce the number of staff in its plants. Currently, Vauxhall, which operates both Peugeot and Citroen, has over 3000 staff in the UK and other regions. Though PSA denied plans to shut down the plants, Vauxhall is uncertain about the impact of the merger in the UK market. The unions have issued conditions that PSA must manufacture in the UK if it still wants to use Vauxhall for marketing its products.
For years, Fiat Chrysler, which owns the Jeep, Alfa Romeo, and Maserati has been searching for opportunities for a merger with strongholds of the industry. The company first attempt to collaborate with General Motors and Renault, but the agreement discussions flopped prematurely. It is alleged that the deal with Renault failed to materialize due to the political conditions in France. Fiat intends to use the merger to cut down costs, utilize capacity to the maximum and collect funds for its electric automobiles.
Benefits of the Merger
The plans for the merger are still underway, and the boards for both companies are expected to sign a memorandum of understanding soon. The merger would support various investment opportunities, including vehicle platforms, advanced technologies, and powertrains. The new business entity would have headquarters in the Netherlands and listed on stock exchanges in France, Italy, and the US. Furthermore, the two companies would have a network of operations in several countries, including France and Italy.
The French government has promised to support the merger to encourage and safeguard business and job opportunities for citizens. The merger would help in resolving the challenges facing the automobile industry, such as the production of autonomous and electric vehicles. The two competitors would pull efforts in advancing the global sector.