The global auto industry’s problems are accelerating. Profitability weakens while sales slip, the cost of the electric revolution advances as the payback date recedes, European fuel economy rules threaten huge fines while tariff wars loom. Are mergers the answer?
The global auto industry’s problems are accelerating. Profitability is weakening while sales slip, the cost of the electric revolution advances as the payback date recedes, European fuel economy rules threaten huge fines, while tariff wars loom.
A merger of PSA and FCA has now returned to the spotlight. Investment researcher Evercore ISI likes the idea, but wants PSA to wait a while longer when it could pick up FCA a bit cheaper after it faces down a few crises., potential U.S./EU trade uncertainties to clear, and on top of this for FCA’s North American inventories issues and upcoming EU emission headwinds to play out,” Evercore ISI analyst Arndt Ellinghorst said.
“We’re in the grip of M&A fever. Strategy teams are being reinforced. McKinsey is busy everywhere. Bankers are circling. Ideas are being thrown around. Industry leaders are preaching the need for scale. Everyone is talking to everyone. But is M&A the answer? While a sub-1 million unit a year manufacturer is clearly ‘sub-scale’ and even 2 million units is questionable, beyond that it gets more complex,” Warburton said.
“PSA already has exceptional regional scale – going global will not necessarily deliver scale benefits. FCA’s issue is not scale – but rather low price points and excessive complexity,” Warburton said. Nevertheless, Evercore ISI believes PSA should wait before going for FCA, although it sees another option – instead of acquiring FCA it could form a partnership similar to the one Ford and VW announced last month which concentrated on niche areas of cooperation including vans and electric cars.was on the brink of bankruptcy and was saved by a $3.6 billion state-backed rescue plan after racking up more than $8.3 billion in losses over a couple of years.
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