Fiat Chrysler-PSA deal likely to result in fewer brands and models

MILAN - Automobile shoppers across the globe are likely to see fewer vehicles and brands if the merger of Fiat Chrysler and France's PSA goes through, but the new company will be big enough to compete in a fast-changing business that requires vast sums of money to develop autonomous and electric vehicles.

The two companies announced the merger Thursday that, if finalized, will create the world's fourth-largest auto company worth $50 billion. But PSA will have the upper hand in the deal, with its cost-cutting CEO Carlos Tavares in charge and PSA controlling the new company's board.

Both companies still have to agree on final provisions, but the deal could close by the end of the year.

Tavares, who used to run Nissan in the Americas and knows the United States market well, will not shy away from trimming unprofitable models and brands. He's credited with turning around the Opel and Vauxhall brands in Europe, perennial money-losers which PSA acquired from General Motors two years ago.

Bernstein analyst Max Warburton wrote in a note to investors that he's confident Tavares can successfully combine the companies.

"Tavares' playbook has been to take on lossing businesses and fix them, rapidly," Warburton wrote. "We believe he can achieve something similar at Fiat in Europe." He called Tavares the "world's most frugal auto executive".

Fiat Chrysler CEO Mike Manley was left without a title in the combined company.

He'll take a senior leadership position, the companies said, but his role in the new business was not immediately clear.

Tavares will hold the 11th seat on the new company's otherwise evenly split board, giving control of it to PSA, although Fiat Chrysler's chairman, John Elkann, will become chairman of the new company.

Before the deal closes, FCA will pay its shareholders a 5.5 billion euro ($6.1 billion) premium, raising questions about whether the new company will be saddled with too much debt. Jeffries analyst Philippe Houchois estimated that Peugeot is paying a hefty 32 percent premium to take control of Fiat Chrysler.

In the US, the deal brought back bad memories of 1998, when Germany's Daimler and Chrysler announced what was billed as a "merger of equals".

It turned out to be a takeover that resulted in massive culture clashes between Daimler, which owns Mercedes, and Chrysler.

The companies never meshed, and Daimler desperately jettisoned the US automaker in 2007 to a private equity company that drove it into a government-funded bankruptcy.

"You just sort of scratch your head and go 'Oh my God, it's happening again,'" Bud Liebler, who was Chrysler's marketing chief when Daimler took over, said of the PSA deal.

But Liebler said he can't see PSA messing too much with the US operations because they're performing solidly, largely due to sales of the popular Jeep brand and profitable Ram pickup trucks.

"I can't imagine why you would want to screw up something that's been working so well," he said.

Tavares has ambitions of selling PSA vehicles in the US, but Gartner analyst Mike Ramsey said that may come by just re-labeling the vehicles as Fiat or Chrysler models.

PSA and Fiat Chrysler predict savings of 3.7 billion euros from the deal, which they expect to achieve without any factory closures.

Much of that savings would come from sharing research and development costs on vehicle "platforms", the underpinnings on which cars, trucks and SUVs are built. Platforms normally cost $1 billion each to develop, and consolidating them is where most of the savings would come.

Ramsey doesn't foresee an immediate impact when the companies combine, but said the new merger will be felt within three or four years as new vehicles are developed.

"They need to sit down and figure out where their overlapping platforms are and how their products are going to merge over time," he said.

In the US, Tavares won't be afraid to go after underperforming models and brands, Ramsey said. A top candidate for elimination would be the Chrysler brand, which has dwindled to only two models, a minivan and a car, he said.

AP