Fiat Chrysler And PSA Peugeot Approve Merger To Create World's No.4 Carmaker

Fiat Chrysler and Peugeot owner PSA plan to join forces through a 50-50 share swap to create the world’s fourth-largest automaker, they said on Thursday, triggering a new wave of consolidation in the car industry.

The two car companies announced a deal as the automotive industry faces increasing challenges.

The merger would bring together Italian-American Fiat Chrysler, with its strong footprint in North America where it makes at least two-thirds of its profits, and France's PSA Peugeot, the No. 2 automaker in Europe. Both lag in China, despite the participation of the Chinese shareholder Dongfeng, in PSA Peugeot, and are catching up in the transition to electrified powertrains.

The new company’s shares will be listed in New York, Paris and Milan. FCA’s John Elkann would become the chairman and Peugeot’s Carlos Tavares would become the CEO. The proposed tie-up would reportedly create an industry behemoth with 8.7 million vehicle sales, $190 billion in turnover and a combined 400,000 employees.

Shareholders of each automaker would own 50% of the combined operation, the companies said in a joint statement on Thursday. A binding agreement could be finalized within weeks, the statement said.

The move comes less than five months after FCA abandoned merger talks with PSA’s French rival Renault (RENA.PA) and at a time when carmakers are grappling with a global downturn in demand, as well as costly new technologies such as self-driving vehicles and cleaner models to meet tough new emissions rules.

Once a merger is finalized, PSA Peugeot CEO Carlos Tavares will be chief executive of the new company with Fiat Chrysler Chairman John Elkann taking the role of chairman. Fiat Chrysler CEO Mike Manley would have a senior executive role and work closely with Tavares.

“In a rapidly changing environment, with new challenges in connected, electrified, shared and autonomous mobility, the combined entity would leverage its strong global R&D (research and development) footprint and ecosystem to foster innovation and meet these challenges with speed and capital efficiency.”

The huge amount of capital needed to meet these new challenges has forced some automakers to find partners and turned others into acquisition targets.

The multi-brand group will include the Fiat, Dodge, Ram, Chrysler, Alfa Romeo, Maserati, Peugeot, DS, Opel and Vauxhall brands, allowing it to serve mass and premium passenger car markets as well as trucks and light commercial vehicles.

The automakers said that the new company would be able to meet the challenges of powertrain electrification, connectivity and autonomous driving "with speed and capital efficiency."

Early reports of the merger talks which would create a new group worth roughly $50 billion have moved share prices for both automakers this week. Italian-American carmaker Fiat Chrysler saw its stock surge as much as 8% on Tuesday and added another 5% on Wednesday. Peugeot shares actually fell 8.8% as markets opened in Europe on Thursday.