France’s PSA Group, the owner of carmaker Peugeot, and its US-Italian rival Fiat Chrysler are in talks for a potential merger. If the talks lead to an eventual deal, it would create a $50-billion behemoth of a car-maker. Reports also suggest that the combined entity would become the fourth largest car-maker in the world, with just Volkswagen, Toyota, and Renault-Nissan ahead of it.
Investors appear to see merit in the two companies’ merger drive, as it would bring several brands—such as Alfa Romeo, Citroen, Jeep, Opel, Peugeot and Vauxhall—under one umbrella. Paris-listed Peugeot’s shares rallied more than 6% to an 11-year high, while those of Fiat Chrysler jumped about 10% in Milan.
The global automobile industry has been in a churn for a while. The world over, car-makers are seeing a deceleration in sales. This coincides with an increasing shift towards electric vehicles, stricter emission norms, and the development of disruptive technologies such as driverless vehicles pioneered by the likes of Tesla. It requires huge resources to keep pace with such rapid changes in the regulatory and technological environment. Fiat Chrysler and Peugeot would hope to leverage each other’s knowhow and financial heft to better compete against groups that are seen to have vroomed ahead. Yet, the deal could find itself up against a political barrier. The Chinese government has a considerable stake in PSA, and despite the occasional claims to the contrary, there has been no let up in the tariff war between China and the US.