By on December 14, 2008

For days, Fiat’s CEO Sergio Marchionne had made noises that his company cannot survive alone and is in urgent need of a strong partner to live to tell the tale in the nasty car business. He may have found a suitor, the Italian business paper Milano Finanza (sub) reports: PSA, maker of Peugeot and Citroen. According to the paper, the marriage is being arranged at the highest levels: Italian Prime Minister Silvio Berlusconi and French President Nicolas Sarkozy are discussing to tie the knot between their countries’ automakers. There could even be a dowry: Berlusconi is currently thinking about aid to the auto sector. Except for Fiat, Italy hasn’t much of an auto sector. PSA and Fiat are no strangers. They have two joint ventures, one for trucks and one for the “Eurovan” MPVs. Combined output of the two companies was 6.2m units last year. A combined Fiat-PSA would have a good shot at the number 4 slot, with Toyota first, GM second, and VW third. Fiat-PSA would have to duke it out with Ford and Renault-Nissan. What’s the prospective couple saying to all this?

Marchionne had recently supposed that globally, there is only room for six global players in the automotive world : “By the time we finish with this in the next 24 months, as far as mass-producers are concerned, we’re going to end up with one American house, one German of size; one French-Japanese, maybe with an extension in the U.S.; one in Japan; one in China and one other potential European player.”

Apart from fast-talking Marchionne, the potential couple is keeping quiet. Fiat and PSA spokespeople had no immediate comment. John Elkann, chairman of holding company IFI, Fiat’s controlling shareholder, will meet Berlusconi on Wednesday, Milano Finanza said. And let’s not forget, the French Connection is known for its great car chases.

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20 Comments on “A French-Italian Connection? Fiat And PSA Said To Be Dating...”

  • avatar
    Stu Sidoti

    Someone please correct me if I’m wrong, but isn’t Italy one of the most restrictive markets in the West for imported cars? Something like less than 100,000 can be brought in total? (according to Wikipedia Japanese and Korean imports are less than 18% of the Italian Market)

    If that is true, and FIAT Group is the only major car-maker with any sizable volume in Italy and Marchionne STILL can’t make that generous set of conditions work, then he’s worse off than we are. If you have such a limited market on imports, you’re the only domestic car-maker and you have a large slice of the market share and you still can’t make it work? Wait a minute, this all sounds too familiar-the U.S. market circa 1988.

    Nonetheless this all reminds me of something Thomas Freidman once said ” If America is not ready for the Flat World, then the EU is REALLY not ready for the Flat World”…

    Maybe we should start a ‘Franco-Italiano Leyland Watch’ ?!?!

  • avatar
    Justin Berkowitz

    Yet another merger rumor. While Mr M.’s comments are, uh, interesting, I’m not sure if even he believes them.

    As far as I can remember, that the last merger (outside of China) in the automotive industry was Renault-Nissan in 1999.

    Everyone tosses around the idea of a Fiat merger. They are apparently considered the harlot of Europe.

  • avatar

    I actually don’t know anything on Italian import restrictions, but I do know that Asian cars are not that popular in Europe in general. I’ve just looked up the numbers for November in Germany:

    Market share:
    Daihatsu 0.3%
    Honda 1.2%
    Hyundai 3.1%
    KIA 1.0%
    Mazda 1.3%
    Mitsubishi 1.2%
    Nissan 1.4%
    Ssangyong 0.0% (6 cars sold)
    Subaru 0.3%
    Suzuki 0.9%
    Toyota/Lexus 2.7%
    Total 13.4%

  • avatar
    Robert Frankfurter

    Italy is a member of the EU.
    All EU member states have by law exactly the same import and customs as well as car safety regulations.
    At least theoretically.
    The market deviation stems 90 % from the Italian psyche to consider Italian products first and second Italian (like many in the USA who incline to buy homemade even if it is less price-worthy on the product) and the power of Fiats brutal good marketing – not only within Italy.
    Besides – they have attractive, really nice made range of small cars high on milage (a vital point with gasolinprices in the range of 5-8$/Gallon)

    I actually drove the newest “replica” of the vintage Fita 500

    A very nice city car indeed, inside elegant as only italian artists can execute. Snappy as a Vespa.
    As soon as the Fiat 500 electric version comes (most probably 2009) to the market, the import of gas guzzlers to Italy will be towards 0 and technology will make Mr. Spok waggle its ears.

    The current 500 has enjoyed phenomenal sales success so far. Within 3 weeks of the 500’s launch the entire year’s production of 58,000 had been sold out. To date, Fiat has received more than 205,000 orders for the 500. Amazingly, the Fiat 500 isn’t available yet in higher volumes to many outside markets.

  • avatar

    @Stu: Frankfurter is right, and someone told you a story. If Italy would limit car imports to 100,000 , they would be in the EU court in Brussels tomorrow. Off the top of my head, Fiat holds a 30% or so market share in Italy.

  • avatar
    John Horner

    A Fiat-PSA combination seems to make a lot of sense. In many ways a modern auto company is going to be able to do very well while at the same time largely ignoring the US market.

  • avatar

    I don’t why why FIAT is considered to be the “harlot” of Europe.

    It’s quality is improving (they have a 5 year bumper to bumper warranty on the FIAT Bravo), their cars are good and Marchionne is considered an asset (he turned FIAT around by killing bureaucracy and vowed not to close a single plant down). Not to mention, FIAT have a relationship with Tata. Which means, they’ll gain access to Indian markets, plus gain a foothold into the North American market.

    The only thing going against FIAT is their size. That’s all.

    PSA could gain a lot from buying FIAT, but it could also gain a lot of headaches too (i.e FIAT’s line up could cannibalise PSA’s line up).

    Tata should buy up FIAT. That makes more sense. Or even better, have a structure with Tata, like Renault has with Nissan.

    2 separate companies, but merged purchasing, global platforms and shared technologies. That way 2 separate companies get the benefits of a bigger company without without the pain of merger.

    Which reminds me….

    Mr Berkowitz, Renault and Nissan have not merged. They formed an alliance. Apart from the 44.4% of Nissan owned by Renault, the 15% of Renault owned by Nissan and the 15% of Renault owned by the French government, the rest of Renault and Nissan’s shares are freely traded on the stock market. They form synergies where it suits each other to save money and operate independently when they need the agility of a small company.

  • avatar

    @Katie: Good analysis. However, Tata is in no position to buy Fiat, or anyone else in the near future. See

  • avatar

    @ Mr Schmitt,

    My analyses are ALWAYS good! :O)

    And with all due respect, I pointed out how Tata SHOULD buy FIAT, I never mentioned that they COULD buy FIAT.

    It just makes alot of sense for Tata to buy FIAT. Just a shame of the economic conditions….

  • avatar

    @Katie: True, Fiat would be a great asset for a low cost producer such as Tata. A Fiat Nano would sell much better in Europe than a Tata Nano, it could command a premium. Even at €5K it would fly off the shelves so to speak.

  • avatar

    Fiat Nano? This sounds like the last rebadge flop of Tata, the infamous “City Rover”.

    Let’s face it, the Tata Nano is made for 3rd world countries to offer a very basic level entry to the car market for people who use motorcycles now.

    PSA does not need to merge with anybody. Basically PSA does collaborate with anyone in the car industry.

    They engineer their Diesel engines in collaboration with Ford. The last batch of 4-cyclinder Gasoline engines was done with BMW. The 6-cylinder Gasoline engine is shared with Renault as far as I know. And the article already states that they have a joint venture with Fiat to produce their commercial verhicles.

    PSA’s enty level cars, the Citroen C1 aka Peugeot 107 aka Toyota Aygo is also produced in a joint venture. And then they have a SUV which is done together with Mitsubishi (Outlander, Peugeot 4007, Citroen Crosser).

  • avatar

    @Mr Schmitt,

    It would make more sense, for Tata to leave FIAT in the hands of Marchionne and let Tata run Jaguar and Land Rover.

    Europe is taken care for with low cost cars (FIAT 500, anyone?). They could do a FIAT Nano for Latin America and South East Asia.

    I think FIAT and Tata should concentrate on using their economies of scale to buy supplies cheaper and bring costs down.

  • avatar

    Renault and Nissan have not merged. They formed an alliance.

    A stock swap is, for all intents and purpose, a merger. That is typically how they are handled.

    In practice, Renault acquired Nissan. Renault installed the CEO, who crafted Nissan’s business strategy and restructured the management team.

    Calling it an “alliance” is management jargon, because Ghosn wants each unit to be independently profitable and autonomous in creating products to serve its markets. That is a lot like Sloan’s model for GM, when you think about it, but for the fact that Nissan and Renault have some separate shareholders.

  • avatar

    Europe is taken care for with low cost cars (FIAT 500, anyone?

    There I must disagree. European volume models are too expensive – victims of the relentless up-positioning. A slightly less than spartan Golf costs above €20K. Even a halfway decent Fiat 500 costs €12.5 or €14.5K The market needs cars below €10K.

  • avatar

    Dacia Logan or Sandero anyone?

  • avatar

    Ummm Latin America (specially its richer parts, Brazil, Argentina, Chile, Uruguay, Mexico) will not take a Nano. Not if it doesn’t come with side protection bars, not if it doesn’t pass some crash protection standards (mandatory by law) not to mention air con and power steering. You forget that in Latin America there is a car culture, and tradition, and regulations. No, we don’t care about air bags , esc, or abs (they are still relatively rare, but growing everyday), but cars must obey minimal safety and environmental standards (crumple zones, emissions). For example, in this country (Brazil) Chinese cars have had a tremendous time getting anywhere and as a reminder, Lada, perceived as inherently inferior flopped badly in the beginning of the 90s (following the same strategy as Chinese, low, low prices but questionable quality). Think of us as somewhat similar to Eastern and maybe even Central Europe, what flies there will fly here.

    And, ummm, yes. I got myself a Renault Logan. Very happy with it. All the main creature conforts sought after here and still getting around 40mpg city/almost 60 highway (if I decide to fill up with ethanol mileage falls about 30%, but due to tax subsidies it makes financial sense).

    As to the main theme of the news, I think Fiat’s CEO is just crying trying to wring some money out of his government. You know the French will not let their industry go down and the italians will probably not do so either. As to this future w/ just 6 players I’ve heard it a million times. And i Hope it’s still far off in some CEO’s distant future “ideal” world. It’s certainly not mine. I mean, what would I buy? Some Japanese cars to fall asleep? Some Chinese or Indian car that’d kill me? Some German car?????? Please, yikes, hate those. Maybe I’d have to just buy American then, of all of the aove it’d be the lesser evil and sometimes, with luck, we’d get greatness (BelAir, Viper, Taurus, Mustang, Deville etc).

    End of rant

  • avatar

    The FIAT 500 isn’t a low cost car. It’s a Panda in expensive drag. And the Golf is around the median of the European carmarket so not a cheap car.

    There is also the issue that cheap new cars compete with second hand cars. In growth markets like India and China second hand cars keep their price better and you don’t even have enough to supply the demand for motoring (China went from less than 1 million a year ten years ago to 6 million now)

  • avatar

    @FromBrazil: Exactly. A car imported to Europe must adhere (and be certified to) the ENCAP safety standards and all applicable ECE norms. If it does this, it can be sold pretty much anywhere in the world. Except for the U.S. and Canada, which live in their own world, standards-wise. As for the 6 automakers, I couldn’t agree more. 20 years ago, the industry was convinced that by the year 2000, only 4 big makers would be left standing. And what do we have now? In China, they don’t even know for sure how many automakers they have. It’s definitely over 50.

  • avatar

    If they merge together I think the merger will be on the components and distribution side rather then the model line ups. Competitors seem to use each others bits quite a lot :

    Ford use some PSA engines in the Fester
    GM sell a version of a Renault van
    Fiat and PSA sell mini MPVs developed together, as well as other vans.
    Some GM and FIAT models share engines

    Nobody is totally independent any more.

  • avatar

    The van in question is designed by Renault but build by GM.

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