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Fiat Chrysler, Peugeot execs vaunt efficiency, technology benefits of merger

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Fiat Chrysler, Peugeot execs vaunt efficiency, technology benefits of merger

The man who will soon run the combined Peugeot SA-Fiat Chrysler Automobiles NV, a carmaker with a dozen badges and a presence across the globe's major automotive markets, said the merger will put the companies at the forefront of major technological shifts transforming the industry and reduce vulnerability to risks they entail.

"We will have the size to provide cutting edge technology. We understand that this new company will be competitive and will challenge the status quo in terms of what is now ongoing in the worldwide automotive industry," CEO of Groupe PSA Carlos Tavares said on a Dec. 18 conference call following the announcement of the terms of the merger.

Tavares has gained prominence internationally since it emerged that the new company would call upon his recently demonstrated management prowess to oversee a matrimony that will unite the French parent of the Peugeot, Citroen and DS brands with the U.S.-Italian automaker, whose North American pick-ups and off-roaders accounted for more than 100% of the entire group's adjusted operating profit in the third quarter.

Under Tavares' stewardship, the Peugeot group increased its recurring operating profit margin to 8.7% in the first half of 2019 versus 5.9% in full year 2017, an impressive achievement at a time when many of its peers' margins have slipped into reverse gear.

Observers hope the respective strengths of the two companies will provide enough combined might to enable Tavares and his team to tackle structural problems among the Italian brands that will come as part of the Fiat-Chrysler package, including Fiat, Alfa Romeo and Lancia. The Portuguese-born executive won plaudits for overseeing a rapid turn-around of a floundering Opel-Vauxhall after purchasing it in 2017.

"Now by coming together, the strength of one company will help address the challenges of the other and create significant upsides, such as having a more balanced and global footprint that integrates FCA's strong position in North America and Latin America and PSA's in Europe," said Fiat Chrysler CEO Mike Manley, whose role in the combined entity has yet to be determined.

Asked by one analyst what potential existed to address the problem of relatively low labor productivity on the European Fiat group side of the FCA group, Tavares, renowned for an obsession with thrift in business, indicated there was no plan to implement significant change.

"I don't believe there is enormous potential on that matter. We need to be smart in the way we are going to invest. We need to be smart in the way we are going to buy," he said, shifting the focus to savings on procurement and joint product development while noting that FCA as a whole was performing well on manpower metrics.

The low productivity stems from excess factory capacity in its Italian plants that FCA has acknowledged, and which has been exacerbated by the decision not to update or replace high volume Fiat models like the Punto. Manley reiterated his comments made earlier in the year that the excess capacity would be temporary, with new models to take up the slack at Italian plants within a few years.

In a reminder of the overwhelming contribution of Fiat Chryslers' Dodge, Ram and Jeep brands to the company's performance, one analyst asked Manley whether the JEEP ticker symbol was available for use for the combined entity.

"I can't confirm whether I have access to that ticker symbol. I'm just trying to work out, even if I did, would I want to use it?" Manley said.