Five Reasons Why France Is Backing a Fiat-Peugeot Merger

(Bloomberg) -- Just minutes after Peugeot-maker PSA Group and Fiat Chrysler Automobiles NV unveiled their plan to form the world’s fourth-largest carmaker, the French government signaled its support for the tie-up.

“The operation responds to a need in the auto industry for consolidation to face the challenges of the future,” French Finance Minister Bruno Le Maire said in a statement Thursday.

Le Maire’s remarks are significant, especially considering that the government in June scuppered a deal between Fiat and Renault SA, PSA’s French auto-making rival. France is a major shareholder in both, holding 12% of PSA and 15% of Renault.

Below are five reasons France may be more supportive this time around.

Two Champions

The government may have realized that creating two winning combinations is better than one. Albeit rocky, Renault’s partnership with Nissan Motor Co. and Mitsubishi Motors Corp. has propelled the trio into the No. 1 ranking in 2018 among global producers.

“In this new global situation, its two manufacturers, with their respective partners, would thus rank among the top four manufacturers in the world,” Le Maire said in the statement.

Automakers are under pressure to pool their resources in the face of a wall of investment needed to roll out cleaner conventional vehicles as well as the electric and self-driving vehicles of the future.

Rebound

The French government came under rare public criticism from Renault Chairman Jean-Dominique Senard for causing the last-minute collapse in June of its planned merger with Fiat.

John Elkann, chairman of the Italian-American carmaker, abruptly walked away, blaming “political conditions in France.” The state had asked for more time to win support from Nissan, a request that led Fiat to pull the plug.

The debacle scarred Senard for failing to properly prepare the terrain and Le Maire, for leading the interventionist charge by a government that had vowed to be less hands-on in business.

Strength

PSA’s CEO Carlos Tavares has been called a “magician” by some financial analysts for his quick revival of the automaker, which has industry-leading profit margins at its car business despite poor performance in China.

In contrast, Renault this month warned investors its annual profit will be lower than expected, partly due to weak results at Nissan. The company is also scrambling to fix its troubled partnership with the Japanese automaker, which has been under strain since the arrest of their former leader Carlos Ghosn in November 2018. Adding to the disarray, Senard just ousted former CEO Thierry Bollore and is looking for a replacement.

Le Maire’s statement praised Tavares for his work leading the recovery and development of PSA after a state bailout.

Job Guarantees

Employment is among the biggest considerations for France amid the car industry’s downturn and weakening of European economies. The automakers said today that they aimed to generate annual synergies of about 3.7 billion euros ($4.1 billion), without closing any plants.

Tavares’s record may be cause for union concern. PSA bought the Opel and Vauxhall brands from General Motors Co. two years ago. The CEO ended two decades of losses at the business with deep cost cuts, mainly through headcount reductions and technology transfers.

Still, in examining the PSA-Fiat combination, the government will be “particularly vigilant” in preserving the industrial footprint in France, according to the statement.

Battery Dream

France has made clear it would scrutinize any deal between Fiat and PSA for its commitment toward the creation of a European car-battery maker. This was one of the conditions for its support of the failed deal between Fiat and Renault.

PSA said earlier this year it would invest in the project along with other private companies.

To contact the reporters on this story: Ania Nussbaum in Paris at anussbaum5@bloomberg.net;Helene Fouquet in Paris at hfouquet1@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Tara Patel, Frank Connelly

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