By Nora Naughton
PSA Group shareholders approved the car company's merger with
rival Fiat Chrysler Automobiles NV at a meeting Monday, a step
critical to moving the trans-Atlantic tie-up into its final
stages.
Shareholders in Fiat Chrysler are also expected to vote on the
merger Monday.
For more than a year, the two auto makers have been working
through the details of the combination, which when completed would
create a global auto-making colossus, selling 8.7 million vehicles
annually -- more than General Motors Co.
The two are aiming to complete the merger early this year and
plan to call the combined company Stellantis NV.
At Peugeot maker PSA, more than 90% of shareholders voted to
approve the merger-related measures, according to results presented
by the company at the Monday meeting.
The combination is expected to produce savings -- $6.1 billion
annually by the companies' projections -- as well as help the two
auto makers navigate increasingly stringent emissions regulations
and invest in new technologies such as electric vehicles.
Meanwhile, the new Stellantis will have to manage a hefty slate
of 15 vehicle brands, while fixing its business in China and
improving results in Europe, a crowded market that has long
bedeviled many car companies.
Like other auto manufacturers, both companies have been weakened
by the coronavirus pandemic, and Carlos Tavares, the PSA chief
tapped to lead the combined group, will face the task of
integrating their global operations at a time the industry is still
trying to regain its footing after a turbulent year.
Fiat Chrysler and PSA executives say the economic challenges
created by the pandemic have only further underscored their
rationale for the merger, the auto sector's largest since 1998.
Both companies declined to comment.
"The merger is an opportunity to reset everything in a really
fast-changing industry," said Philippe Houchois, an auto analyst
for Jefferies. "Now, you can change your priorities to adjust to
the changing world."
France's PSA, whose brands include Peugeot and Citroën, has
fared better than rivals during the health crisis, managing to post
a profit in the first half of 2020. Fiat Chrysler was hit hard this
spring by factory closures and a collapse in vehicle demand,
leading it to cut its shareholder dividend in April. But the
strength of the U.S. market's rebound over the summer helped it
post a surprisingly strong profit in the third quarter.
Mr. Tavares has long been a rising star in the auto industry. He
spent more than three decades climbing the ranks at the
Nissan-Renault Alliance and was once considered an heir apparent to
Carlos Ghosn, at the time the alliance's head, before leaving in
2013 to take over then-struggling rival PSA.
At PSA, he led the purchase of GM's money-losing brands in
Europe -- Opel and Vauxhall -- and the following year restored them
to profitability.
Still, megamergers in the auto industry have a spotty record,
analysts and executives say, and the FCA-PSA tie-up comes as other
global auto manufacturers are moving quickly to downsize and be
more nimble.
One of the biggest challenges facing Mr. Tavares will be trying
to manage the combined group's collection of automotive brands,
which would number 15 when the deal is complete -- more than the
dozen owned by Volkswagen AG, now the world's largest auto maker by
sales.
Mr. Tavares has said he doesn't plan to cut any brands, but
industry analysts say that will put pressure on Stellantis to keep
each one distinctive, while generating savings by combining the
underlying engineering and manufacturing.
"They have to play that very tactically," said Stefano Aversa, a
vice chairman at consulting firm AlixPartners. "Over time, you will
likely see a repositioning or consolidating of certain brands to
avoid overlap."
In Europe, where both auto makers have a big presence, the
market is only getting tougher. New auto-emissions regulations are
compelling car companies to roll out more hybrid and electric
vehicles or face penalties. And vehicle demand remains depressed as
the pandemic's fallout continues to take a toll on sales.
Fiat Chrysler, in particular, has long grappled with factories
running at below-normal capacity, industry data shows, but closing
plants in Europe is expensive and politically fraught, analysts
say.
Both companies have insisted they won't close plants as part of
the deal. But that would mean Mr. Tavares would have to find ways
to fill up the European factories with models that generate steady
sales -- a tactic Fiat Chrysler has tried in the past with little
success, analysts say.
Similarly, in China, the world's largest auto market, Fiat
Chrysler and PSA have struggled to gain a larger foothold, selling
fewer than 200,000 vehicles combined in 2019, according to industry
data. That represents less than 1% of the nearly 26 million
vehicles sold in China that year.
Jefferies' Mr. Houchois said Mr. Tavares faces a big decision in
China: to stay or go. With the Chinese government phasing out a
joint-venture requirement for auto makers in 2022, the new
Stellantis chief could use its expiration to take an entirely
different approach.
"You can't really be a global auto maker without a presence
there, so then it becomes: 'How do you go about it?' " Mr. Houchois
said.
The deal already has cleared several key hurdles, including
winning approval from European Union regulators, but it is still
waiting for regulatory approval from governments in several smaller
markets. The companies also have yet to publicly reveal the new
leadership team.
Fiat Chrysler said in December that Mike Manley, the company's
current chief executive, would take on a new role postmerger,
running the Americas for the newly combined auto maker.
For Mr. Tavares, the U.S. market presents the biggest
opportunity, analysts say. Fiat Chrysler's Ram and Jeep brands are
reliable profit generators, and even though U.S. auto sales have
been depressed by the pandemic-induced recession, the company's
earnings in North America have remained robust.
Mr. Tavares has already indicated that he plans to reintroduce
Peugeot to the U.S. market after a nearly three-decade hiatus.
Write to Nora Naughton at Nora.Naughton@wsj.com
(END) Dow Jones Newswires
January 04, 2021 08:37 ET (13:37 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.