Necessity to Adhere to EU Emission Rules Complicates Fiat-Peugeot Merger
At a time when most of the merger’s in automotive industry have been struggling to survive, UK based Fiat Chrysler has struck a deal with PSA owned, Peugeot, to create the world’s fourth largest automaker. The agreement is likely to increase competition for Volkswagen Group and Toyota Motors, who are otherwise doing great in the business.
The deal would bring in big time benefits for Peugeot, as the firm will get an opportunity to increase its sales in the US. The automotive industry in the US has seen a major shift in past few years as the demand for small and medium sized cars is running low, as compared to the demand for SUVs and trucks. With this deal, Peugeot will get the expertise of Fiat Chrysler’s hot selling Jeep SUVs and Ram trucks.
The upcoming firm will be legally based in the Netherlands and traded in Paris, New York and Milan. Even though Fiat and Peugeot claim it to be a 50-50 merger, the latter would hold a board majority and appoint six of the 11 board members. Investors speculate the entity’s name as “DutchCo”, but Fiat Chrysler spokespersons claim that this isn’t the official title.
Post the binding agreement, the automakers can seek antitrust and regulatory approval from the countries where they wish to operate and from their shareholders. The to be CEO of Fiat-Peugeot merger, Carlos Tavares said, “We don’t feel we have any concerns with antitrust laws. We’ve reviewed this topic and are very comfortable we have no problem on antitrust regulations.”
Most tie-ups in the automotive industry, in the recent times, have not been able to succeed. For instance, the Daimler-Chrysler merger stumbled because of cultural differences between the US and German executives. With the merger announced, Fiat and Peugeot aim at gaining larger share in the Chinese market where companies like BYD, Chery, Great Wall Motors are doing great. About the new project, Tavares said, “That is part of the opportunities. We are not happy with our performance there. We think we should be doing better in China.”
To make the deal a complete success, Chinese automaker, Dongfeng Motor is said to render its support to Fiat-Peugot. In the new company, its stake will be diluted from 6.2 percent to 4.5 percent. Sources claim that all 13 brands that Fiat Chrysler and PSA currently operate will be taken care of by the new merger. The number of vehicle platforms shall shrink in near future.
As the European Union (EU) rules related to carbon emission are going to come into effect starting January 2020, the automotive industry is sure to undergo some modifications. Companies that are unable to meet the demands will witness a major backlash.
Speaking to Automotive News Europe in a recent interview, Executive Vice President, Jean-Philippe Imparato said, “We will have a seasonal effect because of the emissions regulations in the first quarter. I’m not sure all the automakers are ready for them. Fleet emissions of CO2 will have to be 30g/km lower on Jan. 1 and the average now is 122g/km. So if you are not ready now in terms of product, production and stock management, you will be dead in January.”
Considering the urgent need to introduce some manufacturing changes, the upcoming Fiat-Peugeot merger will have to meet expectations of the EU to survive in the industry.
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