Peugeot owner negotiates merger with Fiat Chrysler

The French owner of the Peugeot and Vauxhall brands is in talks with Fiat Chrysler Automobiles (FCA) over a €40bn (£35bn) merger that would create one of the world’s biggest carmakers.

PSA Group on Wednesday confirmed the existence of the talks, which come months after a failed merger attempt between FCA and PSA’s French rival Renault.

News of the discussions raised fears for the jobs of British workers at Vauxhall’s factory in Ellesmere Port, Cheshire. The Unite trade union, which represents workers at the plant, said it was seeking urgent meetings with PSA bosses.

The 1,100 workers at the plant already face uncertainty after PSA issued a stark warning in June that the future of the site depended on a good Brexit deal. PSA also employs 1,200 workers making Vauxhall vans in Luton, Bedfordshire.

FCA has long pursued greater consolidation in the car industry, with leaders of the Italian-American carmaker past and present keen to pool resources. Carmakers around the world are grappling with one of the biggest and most expensive upheavals in the industry’s history as they attempt to move away from fossil fuels and towards battery electric vehicles and autonomous technology.

Shares in Fiat Chrysler rose more than 8% in Milan on Wednesday after the Wall Street Journal reported that talks were under way. Shares in PSA rose by 3% , while shares in Renault fell.

In brief statements, PSA Group and FCA confirmed the talks were in progress. A merged carmaker would have combined sales of nearly 10m a year, based on 2018 results, when Fiat Chrysler sold 5.8m cars and PSA sold 3.9m. By comparison, both Volkswagen and Toyota sell more than 10m cars a year, and the Renault-Nissan-Mitsubishi alliance almost 11m. The combined market capitalisation of both companies is about €40bn.

A deal between PSA and FCA would still face obstacles, however. The talks between FCA and Renault fell through in June, with the carmakers blaming the intervention of the French government, Renault’s largest shareholder.

The French state remains a 12% shareholder in PSA, which also owns the Citroen brand, after bailing the carmaker out in 2014, but analysts were more positive that a deal could be agreed this time. The failed Renault proposal was complicated by its alliance with the Japanese carmaker Nissan.

The deal would give PSA access to the US market, which it previously had plans to target. It would also help FCA catch up in its efforts to avoid fines for excess carbon dioxide emissions. FCA has paid hundreds of millions of euros to “pool” its dirtier cars with Tesla’s zero-emission vehicles to avoid steep fines, but is still considered an industry laggard.

Peugeot’s chief executive, Carlos Tavares, has been open about PSA’s willingness to pursue merger opportunities if they made sense for shareholders. In April, Tavares said he would consider buying Britain’s largest carmaker, Jaguar Land Rover, but its Indian owner, Tata, said the company was not for sale.

Tavares, known for his turnarounds of PSA and the Opel/Vauxhall business bought from General Motors, would likely apply his “cost discipline” at a combined PSA/FCA, according to Brian Studioso, an automotive analyst at Creditsights, a debt ratings agency.

“European auto [manufacturer] consolidation is often more of a cost-reducing exercise than a revenue-enhancing one, and jobs will inevitably be on the line, or at the very least called into question,” Studioso wrote.

Cutting jobs in the UK could be less politically sensitive for a merged company, given Italy and France’s record of demanding that job losses are limited in car industry mergers, according to David Bailey, a professor of business economics at the University of Birmingham.

Fiat has significant spare capacity in its European plants and Tavares has previously said the company could switch to a plant in southern Europe to build its Astra cars.

“There is a real risk that Ellesmere Port, despite being an efficient plant, could be sacrificed,” Bailey said.

Unite said that PSA should not continue to use the Vauxhall brand, which has a long history of carmaking in Britain, if it did not continue to manufacture in the UK.

Des Quinn, a national officer at Unite, said: “Merger talks combined with Brexit uncertainty are deeply unsettling for Vauxhall’s UK workforce which is one of the most efficient in Europe.”