Threesome: Fiat Looks To Link With Peugeot as Well as Chrysler, Reports Say
January 22, 2009
By Michelle Krebs
Only days after Italian automaker Fiat and Chrysler announced they were hooking up, word in Europe is that Fiat also is working on a possible merge with France's PSA Peugeot Citroen.
The Fiat-Chrysler-Peugeot threesome would create the world's third-largest automaker behind Toyota and General Motors with a total production of about 8.8 million vehicles, based on 2007 figures, analysts estimate.
Fiat's founding Agnelli family is reportedly considering a capital increase of about $2.6 billion through its family holding company, which owns 30 percent of Fiat. The increased investment would insure the family retains a significant stake in a merged company.
Reuters news service reports that Fiat has been working for the past month to obtain a syndicated credit line of up to 5 billion Euro, with two European banks chipping in an additional 1.5 billion Euro each. That would be more than enough for a complete Fiat takeover of PSA, estimated by analysts to be worth 3 billion Euro.
Fiat said the report about the capital hike was groundless. A PSA spokesman also had no comment apart from saying the French carmaker's priority was to come out of the crisis gripping the car industry.
Still, the stock market took the news seriously. Shares of both companies rose in Thursday morning trading.
Logical Expansion
Fiat and PSA have history of working together, as they have two joint ventures: one making vans and multipurpose vehicles in France and Italy; and another making cars with local automaker Tofas in Turkey.
PSA also has ventures with Ford, BMW and Mitsubishi, including a joint PSA/Mitsubishi plant planned for Russia.
CEOs of both PSA and Fiat have long hinted about closer alliances with other automakers as the global auto industry consolidates.
PSA Chief Executive Christian Streiff has said he wants to deepen the existing partnerships rather than add new partners, Reuters noted. In recent months, Fiat's Sergio Marchionne has been predicting an epic consolidation of the industry and has made public Fiat's intent to lead that consolidation.
Chrysler Connection
On this side of the Atlantic, Fiat and Chrysler, along with Chrysler's majority owner Cerberus Capital Management, announced the pair had signed an alliance agreement that would give Fiat -- with no cash -- a 35 percent stake in the ailing American automaker. Its stake provides Fiat with quick and free entry into U.S. distribution. Chrysler, in turn, gains access to Fiat's small-car expertise.
Fiat reportedly is considering taking another 20 percent of Chrysler but will pay for this one, albeit still a pittance. Word is it will decide within the year if it will take the added stake and pay Chrysler $25 million for it. Reuters, quoting a source close to the Fiat industrial group, said Fiat's decision to add the stake will depend on whether it sees Chrysler as having a chance to survive as a going concern.
"If Chrysler looks like it will get through the crisis they will draw the necessary conclusions and decide what to do," the unnamed source told Reuters.
Fiat's decision to move forward with any stake in Chrysler also may be dependent on the American car company obtaining an additional $3 billion in loans from the U.S. government.
"I think that is part of the deal," product development chief Frank Klegon told Reuters. "That is part of the process. The expectation is that this is an important part of it."
Chrysler had asked Congress late last fall for $7 billion in loans. It received $4 billion on January 2 and could receive the rest if its viability plan for survival passes the muster with the government on the milestone dates of February 17 and March 31.
What Will Congress, Taxpayers Say?
What's not clear is if Congress or the regulators under the new Obama administration will approve the funds as Chrysler links to a foreign automaker.
During last fall's hearings, some Congressional leaders made the distinction between Chrysler and its American counterparts, Ford and General Motors, because Chrysler is privately held by an equity firm. They pounded on Chrysler CEO Bob Nardelli about Cerberus' unwillingness to invest more money in the auto company while expecting U.S. taxpayers to invest in it.
Now, Congress, government regulators and taxpayers may well ask why they should invest in Chrysler when its so-called partner, Fiat, isn't investing a dime either.
Chrysler, Fiat Designers Collaborating
Despite any hurdles, Chrysler and Fiat designers already are meeting to determine the North American portfolio created by their new alliance.
"This week and the months following we will meet with the design studios at Fiat and figure out" what vehicles from the Fiat stable will be adapted to the U.S. market, said Ralph Gilles, Chrysler design vice president, told the Automotive News World Congress Wednesday night.
"There is a lot of collaboration going on. The guys are really enthusiastic. They want to see what we got, and I want to see what they got. That is pretty much where it is right now," he said.
Gilles told the audience of industry leaders that rebadging Fiats as Chryslers is an option, especially small cars in the A, B and C segments, Fiat's strength in Europe. Fiat's Ferrari, Alfa Romeo, Lancia and Maserati brands will not be part of the alliance.
"There may be situations where we can bring their vehicles in as is and there will be great opportunities to do products based on the Fiat DNA," he said, as reported by trade journal Automotive News. "There are some natural fits where it may make sense, but right now we are in a very broad investigation mode. We are looking at all the opportunities," he said.
Gillies agreed the Fiat 500 is of particular interest, though he didn't confirm it if will be part of the deal. Instead, he said, "It is such a fun package. I think Americans, given the chance, will fall in love with this thing."
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