A proposed merger between Fiat Chrysler and Peugeot maker PSA will achieve yearly cost savings of US$4.1-billion without layoffs or plant shutdowns, executives unveiling final terms of the deal said on Wednesday.
The all-stock merger, which requires regulatory approvals that could take 15 months, would form the world’s fourth-biggest automaker and unite brands such as Fiat, Chrysler, Jeep, Dodge with Peugeot and Opel.
Michael Manley, chief executive of Fiat Chrysler Automobiles, told reporters on Wednesday that 40 per cent of the savings would be achieved by sharing vehicle structures and powertrains, while 40 per cent of the savings will come from combined purchasing efficiencies. The rest will come from areas such as marketing, information technology and logistics.
News of the deal comes the same week as the shutdown of General Motors Co.’s assembly plant in Oshawa, Ont. The shutdown, announced a year ago, eliminated almost 3,000 jobs at a time the global auto industry is retooling production to meet slowing demand and changing buyer tastes.
FCA employs 11,700 people in Ontario and operates plants in Windsor, Brampton and Toronto. Those jobs are safe, Mr. Manley said.
“What I can tell you is in the merger there will be no effect on the production in Ontario, Canada,” Mr. Manley told The Globe and Mail by phone.
“We have been clear that as a result of the merger there will be no job losses and closures in our plants,” Mr. Manley said. “Clearly, there will be areas where we will look for efficiencies, but our main focus has been to find synergies from areas where we can either share technology that is existing or share platforms or improve our manufacturing performance.”
The companies sold a combined 8.7 million vehicles last year, but have potential manufacturing capacity of 14 million vehicles, according to forecasters LMC Automotive.
Executives have yet to say precisely how they plan to tackle that potential excess, and which car platforms they will focus on, only detailing that most production would be concentrated on two platforms.
Frank Schwope, a NordLB analyst, said big challenges lay ahead. “The merged group will have to make massive savings and probably also close plants, even if the CEOs’ choice of words is different,” he said, adding large investment would be needed as both PSA and FCA are “currently lagging far behind the competition in terms of technology and product range.”
In the short term, the combined group will use profits from selling Ram pickup trucks and Jeep SUVs to U.S. drivers to fund the development of cleaner vehicles to sell in Europe and China.
Carlos Tavares, the CEO of PSA who will lead the new company, said the biggest intangible asset of a car maker is the brand. “This is why the brands will stay in their countries of origin,” Mr. Tavares said. “Italian brands will stay in Italy, French brands will stay in France, American brands will stay in the U.S. and German brands will stay in Germany.”
With reports from Reuters
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.