Shareholders in Fiat Chrysler Automobiles and PSA, the French manufacturer of cars Peugeot, Citroën and Opel, voted on Monday for the merger in an effort to acquire the scale necessary to survive in a sector dominated by technological changes and punished by the pandemic.
The new company, to be called Stellantis, will employ 400,000 people and include the brands Jeep, Ram Trucks, Alfa Romeo and Maserati. It would be the fourth largest automaker in the world, after Toyota, Volkswagen and the Renault-Nissan-Mitsubishi alliance, based on vehicle sales during the first nine months of 2020.
Executives at Fiat Chrysler and PSA agreed at the end of 2019 to merge and have been working on the details and securing regulatory approval ever since.
Together, the two companies believe they have a better chance of surviving a transition to electric vehicles, which is happening faster than most analysts predicted.
“We are living in an era of profound changes in our industry,” John Elkann, president of Fiat Chrysler, told shareholders by video, making comparisons with the founding of Fiat at the beginning of the automobile era. “We believe that the next decade will redefine mobility as we know it.”
The new company, which will have headquarters in the Netherlands and major operations in France, Italy and the United States, will face major challenges. Neither Fiat Chrysler nor PSA has a strong presence in China, the world’s largest automotive market, and they have been slow to launch electric vehicles.
The two companies have some assets, such as the popular brands Jeep and Ram, said Peter Wells, a professor at Cardiff Business School in Wales. Fiat and PSA delivery vans are selling quickly in Europe, as people buy more products online.
But Fiat Chrysler and PSA also have serious problems, Wells said, as underutilized assembly lines, which will make it difficult to keep promises made to unions and the French government, a large shareholder, not to close factories.
PSA and Fiat Chrysler “have a lot of structural problems that are not going to go away easily,” said Wells.
Bruno Le Maire, the French Minister of Economy and Finance, and Stefano Patuanelli, his Italian counterpart, said in a joint statement that they “warmly welcome” the merger, which will create a “new European champion”.
“Both governments will also pay attention to Stellantis’ contribution to industrial employment in Italy and France,” they added.
The interference perceived by the French government led Fiat to withdraw from merger negotiations with Renault in 2019.
Fiat and PSA were hit hard by the pandemic. Sales of PSA vehicles fell 30% in the 11 months to November, while Fiat Chrysler sold 30% less cars and trucks in the nine months to September, the most recent reporting period.
The damage caused by the pandemic prompted companies to adjust the terms of the merger in September. A special dividend for Fiat Chrysler shareholders, to be paid when the deal closes in late January, has been reduced to 2.9 billion euros, or $ 3.6 billion, from 5.5 billion euros. In return, Fiat Chrysler shareholders will receive a larger share of possible future payments.
Elkann said the pandemic made the justification for the merger “even more compelling”.
Carlos Tavares, PSA’s chief executive, will hold the same position in the new entity. Elkann, a descendant of the Italian Agnelli family and a descendant of the man who founded Fiat in 1899, is in line to be president. Mike Manley, chief executive of Fiat Chrysler, will manage the combined company’s American operations.
“We are ready for this merger,” said Tavares during the PSA shareholders’ meeting, which was held online. He said the merger would allow companies to share electric vehicle development costs and give PSA access to the American market, while reducing their dependence on Europe.
Wells of Cardiff Business School said that, despite all its flaws, the merger probably offered Fiat Chrysler and PSA their best chance of surviving in a brutally competitive environment.
“If it didn’t work out, the consequences would be much worse,” said Wells. “The handwriting would have been on the wall for these two companies.”