Fiat/GM tie-up still unlikely following Opel divestiture - sources (MergerMarket)
A potential merger between General Motors (GM) [NYSE:GM] and Fiat Chrysler Automobiles [NYSE:FCAU] could still face hurdles even after the former separates its Opel subsidiary, said a source familiar with the Opel transaction and several industry sources.
Earlier this week, GM announced an agreement under which it will sell its Opel and Vauxhall subsidiaries, based in Germany and the UK, respectively, to France-based Peugeot (PSA Group) [EPA:UG]. It also sold GM Financial’s European operations, for a combined total of EUR 2.2bn (USD 2.33bn), which will render PSA, post-closure, the second largest auto group in Europe.
At separate points in 2015, FCA’s CEO Sergio Marchionne publicly invited both GM and PSA to merge with the Italy-based automotive giant, but the invitations were rejected. He stressed that a link-up with GM would end needlessly redundant capital spending on automotive technology. As recently as last week, in a conference call to analysts, Marchionne said he still had hopes for creating a mega-US car company.
But on Monday morning, a spokesperson for GM told this news service that such a deal “made no sense for the company, our customers, shareholders and employees. Our conclusion is still the same” as in 2015.
FCA declined to comment.
Even though GM has now exited Europe to a substantial degree, the company could benefit from taking its Buick and Chevrolet platforms and using FCA’s extensive distribution network in Europe to sell into that continent, a Fiat minority shareholder said. It would be able to do this, he continued, without worrying about the punishing operative costs that entailed running Opel.
FCA has significant production holes due to certain brands, such as Fiat Punto, that have not been refreshed in years, and GM could fill in those gaps with its own brands, the shareholder explained.
Furthermore, Fiat is in great need of more capacity in the US, and a deal with GM could create more production of vehicles there, and thus more potential jobs, said the shareholder.
An FCA/GM combination would help increase scale for FCA and Chrysler brands in the US while allowing GM to fill in FCA gaps abroad, said a Germany-based sector advisor. Also, the sale of Opel will now eliminate potential competition hurdles to such a deal, this advisor, a US-based industry source and a US-based sector advisor said.
However, a GM/FCA merger would create a massive Chrysler and GM dealership footprint in the US, the industry source and US-based sector advisor said. That would necessitate consolidation and, in turn, the potential shuttering of plants and jobs, they said. On the other hand, the Motor Vehicle Franchise Contract Arbitration Fairness Act, passed in the US in 2002, imposes very strict regulations on such closures, so an overabundance of dealerships might be the end result, they said.
Brand overlap is another likely concern, the industry source, the US-based sector advisor and source familiar said. FCA’s Ram Truck and Jeep brands, for instance, would overlap with GM’s similar Silverado and GMC vehicle lines.
Furthermore, the industry source continued, FCA has been focusing more on minivans and SUVs over passenger cars in recent years, and a GM tie-up would indicate a major change in course, back into the passenger market.
At a joint press conference presented by GM, Opel/Vauxhall and PSA on Monday, PSA CFO Jean-Baptiste de Chatillon stated that Opel/Vauxhall is expected to be profitable by 2020. It aims to improve its “purchasing plan, synchronicity of product planning and R&D savings” through “increased bargaining power and capex gains.” Meanwhile, GM CEO Mary Barra said her company will have a “clear different strategic priority and different geographic footprint.”