Peugeot Is Taking Huge Gamble By Merging With Fiat Chrysler Automobiles
Credit to Author: Maarten Vinkhuyzen| Date: Thu, 31 Oct 2019 14:14:58 +0000
Published on October 31st, 2019 | by Maarten Vinkhuyzen
October 31st, 2019 by Maarten Vinkhuyzen
have announced that they are creating a new company owned 50% by current PSA shareholders and 50% by current FCA shareholders.
From the press release:
About 5 years ago PSA realized it was far behind on electric mobility. The company started a crash program to develop a platform and bought Opel for $2 billion from General Motors (GM), expecting to gain insights into the Chevy Volt’s and Bolt’s technology. When Opel did not deliver on the electric expectations, PSA asked for its money back. (Nope, did not get it.)
The former CEO of FCA was a financial wizard and an old-school car man. The sound and smell were as important as the style and performance. He infamously asked the public not to buy the fully electric Fiat 500e, because the company didn’t make money on it and didn’t intend to. FCA is likely the worst prepared global OEM for the coming transition.
When there were talks about a Renault-FCA merger, the financial community salivated about the savings from Renault bringing its R&D budget down to FCA levels, before saving even more from combining the two departments. Renault decided to pass, and now we have this deal. The scariest part of the announcement is this in my eyes:
“The significant value accretion resulting from the transaction is estimated to be approximately €3.7 billion in annual run-rate synergies derived principally from a more efficient allocation of resources for large-scale investments in vehicle platforms, powertrain and technology and from the enhanced purchasing capability inherent in the combined group’s new scale.”
In other words, they expect to spend less money on key technology transitions than they would have if they had tackled the coming transition separately. The problems:
I thought that at least FCA would bring a lot of cash to sustain the coming hard times. But I was mistaken. “Prior to the completion of the transaction, FCA would distribute to its shareholders a special dividend of €5.5 billion.”
The only thing going for this new combination is the quality of its management. They can generate money, implement change, and hopefully will recognize the coming transition in time to survive.
Together they could be stronger than alone, but time will tell.
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Maarten Vinkhuyzen Grumpy old man. The best thing I did with my life was raising two kids. Only finished primary education, but when you don’t go to school, you have lots of time to read. I switched from accounting to software development and ended my career as system integrator and architect. My 2007 boss got two electric Lotus Elise cars to show policymakers the future direction of energy and transportation. And I have been looking to replace my diesel cars with electric vehicles ever since. And putting my money where my mouth is, I have bought Tesla shares. Intend to keep them until I can trade them for a Tesla car.