Takeover Rumors Boost Fiat Chrysler Share Price.
“The main reason FCA could have for teaming up with a rival would be to solve problems in Europe”
Fiat Chrysler Automobiles (FCA) shares have been strong because investors still reckon there’s a chance the company might be taken over, or at least it might sell off some of its juicier money making subsidiaries like Jeep, or exotic icons like Maserati or Alfa Romeo.
FCA shareholders were spooked by news last week first quarter profits failed to meet expectations, but recovered after the company promised it would do better in the rest of 2019.
FCA shares have risen from last November’s 12.62 euro low to the current price just over 13.5 euros, although it fell back from 14.67 euros after the results, as investors hope for some takeover action, although so far there has only been one candidate in the frame – PSA Group of France. Reports also suggest PSA might want to buy ailing British-based and Tata Motors of India owned Jaguar Land Rover.
Some analysts reckon a Chinese automaker might be interested in FCA.
FCA has talked about its willingness to seek partnerships with other global manufacturers, and Manley has said the next two to three years would yield what he called “significant opportunities”.
Analysts have wondered why PSA would want to buy FCA because it is losing money in Europe currently, U.S. margins are falling, and huge investments are required to meet tough environmental regulations in Europe.
But according to French automotive consultancy Inovev, there are big advantages for PSA if it took over FCA.
“First, a larger scale use of PSA platforms and engines, because FCA platforms are old, would be a clear advantage, since the two groups produced a total of nearly 9 million vehicles in 2018 – 4.9 million for FCA and 3.9 million for PSA – compared to 7 million in 2010. These are two growing groups, notably through the acquisition of Chrysler/Jeep by Fiat and Opel/Vauxhall by PSA. With such volume, this association would become the 4th largest manufacturer in the world behind the Volkswagen, Renault-Nissan and Toyota groups,” Inovev said in a report.
“Secondly, geographically speaking, the two automakers are quite complementary, since the PSA group makes 80% of its sales in Europe while the FCA group makes 55% of its sales in North America. On the other hand, they are both quite weak in the world’s largest market, China, as well as in other major markets such as Japan, Korea and Russia,” Inovev said.
“The FCA group has a large number of SUVs and pick-ups, which account for 57% of its worldwide sales, while the PSA group has a large number of sedans, which make up 51% of its worldwide sales. The PSA group also sells more commercial vehicles than the FCA group. It should also be noted that PSA sells certain commercial vehicles resulting from a collaboration with Fiat, including the Peugeot Boxer, and Citroën Jumper,” according to Inovev.
PSA has now become a great profit-maker after flirting with bankruptcy 5 years ago. It is seen as the most likely instigator of a new round of takeovers. After all, it successfully consolidated the hitherto hopelessly unprofitable General Motors (GM) European subsidiaries Opel and Vauxhall.
Media reports also suggested that PSA CEO Carlos Tavares had expressed interest in just buying Jeep from FCA, and Jaguar Land Rover from Tata Motors of India.
Inovev likes the JLR idea too, in case PSA fails to acquire FCA.
JLR has been in the news lately because of its faltering financial performance. It announced a $3.9 billion write down in the quarter ended December 31 because of falling sales in China, while it underestimated the harm that diesel’s fall in popularity would do to its European business.
No surprise Tata
“It would not be surprising in this context if Tata Motors would consider selling the JLR group to another manufacturer. The PSA group seems best placed to acquire Jaguar and Land Rover, as the French manufacturer is looking to expand its offer, particularly in the Premium category where it is currently not very active. The DS brand would need to develop at least another ten years in order to achieve real legitimacy in this category,” Inovev said.
The Wall Street Journal’s Heard on the Street column doesn’t like the idea of PSA buying FCA because Fiat Chrysler is “too American”, where it makes most of its profits.
“The main reason FCA could have for teaming up with a rival would be to solve problems in Europe. The company has long struggled to make money there, where it has a market share of less than 7%, and now faces tightening environmental rules,” Heard columnist Stephen Wilmot said.
“Some kind of European collaboration with (PSA) – perhaps an electric-vehicle project – could help FCA. But a full merger to solve a problem in a region that is so marginal to the company’s investment case seems far-fetched. For all its Italian heritage, FCA’s center of gravity these days is Detroit,” Wilmot said.
In 2013 PSA was on the brink of bankruptcy and was saved by a $3.6 billion state-backed rescue plan after racking up more than $8.3 billion in losses over a couple of years. France, and Chinese carmaker Dongfeng, each bought 14% of the company. The Peugeot family stake was reduced to 14%.
In 2018, PSA Group reported record sales and earnings, buoyed by the success of its Peugeot 3008 and 5008 SUV models. PSA’s recurring operating income jumped 43% to $6.46 billion for a 7.7% profit margin.
Last year PSA brands Peugeot, Citroen, DS, Opel and Vauxhall sold 2.3 million vehicles in Western Europe for a market share of 16.%, behind market leader VW’s 23.3%.
Last month FCA said it will pay Tesla close to 2 billion euros ($2.2 billion for credits to help it make its E.U. emissions targets in 2020. FCA also completed the sale of parts maker Magneti Marelli to Calsonic Kansei for 5.8 billion euros ($6.5 billion).