Fiat Chrysler in merger talks with Peugeot owner PSA

Several months after an aborted attempt at a merger with Renault, US-Italian car maker Fiat Chrysler Automobiles (FCA) is reportedly in talks with Peugeot owner PSA Group over a merger that would create a new automotive giant worth $50-billion (€45-billion), according to the Wall Street Journal.

The new company would be headed by chairman of the PSA board Carlos Tavares as Managing Director, and FCA chairman John Elkann will chair the new board of directors. 

After news of the talks broke, Fiat Chrysler shares rose quickly and finished up by 7.5%. Neither company, nor the French government had any comment.

If the merger is successful in overcoming the financial, political and governance issues, the new automotive giant would still face significant challenges. Globally, the automotive industry is facing the prospect of a slowdown in demand, which happens to coincide with some of the most prolific changes in technology since the industry's birth. 

Carlos Tavares has already predicted the industry is facing "ten years of chaos" as regulators push ever harder for a switch to electric vehicles as part of efforts to reduce emissions to combat climate change.

The EV transition is set to cost auto makers billions and is not expected to produce profile for many years to come. FCA is lagging behind most of its competitors in its efforts to electrify. 

Fiat bought control of Chrysler from US-government backed bankruptcy in 2009, a deal that was only completed five years ago. Nonetheless, the combined automaker is still substantially smaller than many of its rivals, which puts it at a disadvantage in terms of research and development, as well as purchasing muscle. 

There has been speculation for years that FCA has been searching for a partner, spurred on by the company's late CEO Sergio Marchionne, to give it the heft it needs to be competitive.

In 2015, the company made an unsuccessful attempt to interest General Motors in a deal. Earlier this year the attempted merger with Renault ultimately fell through.

An FCA alliance with PSA has been touted by many industry experts as being a better fit that with Renault. Evercore analyst Arndt Ellinghorst said that a Fiat Chrysler - Peugeot merger “should ignite more rational industry behavior around allocation of capital and this particular merger makes materially more sense than a potential FCA-Renault merger.”

The French government, which owns a 12.2% stake in PSA, has said that it would only approve the deal if there were protections in place for French jobs and factories.

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