Fiat Chrysler Automobiles and PSA, owner of French automaker Peugeot, are reportedly in preliminary talks to join forces.
Shares of Fiat Chrysler rose as much as 8%Tuesday after the Wall Street Journal reported the merger discussions, which would create a $50 billion automaker. The article warns that the talks between the company are fluid, and a final deal may not be reached. The companies had no comment.
One possibility, according to the Journal’s unnamed sources, is an “all-share merger of equals” with Peugot CEO Carlos Tavares leading the combined companies.
Fiat recently was in talks to merge with French automaker Renault SA, but the deal did not come to fruition due to a variety of factors, including a veto by the French government, which is a large Renault shareholder, and Nissan Motor, which is a Renault partner.
Analysts from Cox Automotive say a merger of this magnitude would face challenges and would affect the global automotive business.
Staying competitive as a global automaker requires ever-increasing scale, and the quickest route to scale is a merger, says Karl Brauer, executive publisher at Kelley Blue Book and Autotrader.
“Neither FCA nor PSA, independently, are in a position to lead the industry in vehicle sales and product development,” Brauer said in a statement. “But as a united front they are immediately back in the fight to compete for volume, market share and advanced technology with today’s more powerful automakers.”
Each company has something the other wants, says Brian Moody, executive editor for Autotrader.
“Fiat Chrysler could surely use some of Peugeot’s cash and/or existing platforms to help build out a fleet of fresh new cars, including electric and hybrid vehicles,” Moody says. “On the other hand, Peugeot would love to have access to a vast dealership network as well as a way to capitalize on the success of brands and vehicles like Ram and Jeep.”
Automakers are performing a tricky balancing act of maintaining current business as global vehicle sales decline while investing in future technologies, which no one knows will gain traction or, more importantly, make money, says Michelle Krebs, executive analyst for Autotrader.
“Partnering in some way makes sense to spread the cost and risk,” Krebs says. “FCA has long been searching for the right partner, and reportedly talked with PSA before it turned to Renault. While there may be great benefits to partnering, time will tell if this deal sticks.”