When two become one…
“Okay FCA, just stop!” was how General Motors (GM) rebuffed Fiat-Chrysler Automobiles (FCA) on a possible GM-FCA merger. FCA has lately been punching above its weight to make overtures to numerous auto-manufacturers. FCA CEO Marchionne has repeatedly expressed his opinion regarding the inevitable consolidation in the automotive industry towards reaping better synergies, especially when over-capacity is a major unsolved issue.
Closely analysing both brands explains GM’s stance: Just like GM, FCA has a strong SUV and LCV portfolio, yet with a much wider reach in the segment. With 21 models FCA produces close to 2.2 million vehicles in this category encompassing the Americas, Europe and Asia. With 34 models GM on the other hand barely manages to produce the same number of vehicles as FCA in the SUV and LCV segment and predominantly caters to the Americas only.
Comparing the small car segment and hybrid capabilities of the two however, we notice that FCA significantly lags behind and finally it becomes clear why Marchionne is pushing for a merger with GM.
Despite serving the same geographical base and with 38 models having two more than GM, FCA racks up just about 2.1 million vehicles in the A/B/C segment which is less than half of what GM produces globally in the same segment. A merger with FCA would therefore be a big gamble for GM, as it would only benefit FCA, while at the same time being a liability to GM.
Meanwhile, GM is trying to run lean by avoiding the addition of any new factory capacity. Since 2010, GM has shut down operations for low-volume brands such as Hummer, Pontiac and Saturn and kept alive highvolume brands such as Buick, Chevrolet, Cadillac and GMC. Factoring in these aspects, GM has also recently undergone a major restructuring at a group level. A deal between GM and FCA looks highly unlikely and it showcases that FCA wants GM more than GM wants FCA.
Considering their strong portfolio in the small car segment, PSA seems to be the most likely automaker FCA should approach. A merger would help both brands to focus on their strengths, while at the same time gain sufficient market impetus for each other in those regions in which the other lags behind. PSA has a rather strong small car portfolio that FCA can benefit from and needs to become more of a global player.
Together PSA and FCA can cater to their specific needs of filling the gaps in each other’s portfolio. Yet a merger with PSA seems to be a slightly difficult proposition as PSA itself is struggling to recapture the market domination they once had.
The future is all about succeeding in the market or succumbing to its dynamics. There are three possibilities for FCA to succeed. If Marchionne is seriously considering bringing GM on board, there is a back-door way to do it and FCA might well be pursuing it. The second option would be to partner with tech-giants such as Google or Apple. A disruptor such as these is what FCA needs, as it would instantaneously equip the automaker with groundbreaking technological prowess across automated driving, best-inclass connectivity/HMI among other things, something FCA is currently not well known for.
Thirdly, partnering with PSA seems to be the most logical way ahead. PSA will bring in the volumes required for FCA in Europe, while FCA can help PSA to become a global automaker by helping the French group with its manufacturing facility and dealership network globally, a win-win situation for both.