Listen: Fiat Chrysler finds new merger partner in Carlos Tavares
"French carmaker. PSA which owns Pirjo and Fiat Chrysler. Automobiles it's Italian American rival have agreed to pursue a merger that would create the world's fourth largest carmaker and reshape the ultimate of sector. I'm here with a motor industry correspondent Peter Campbell. And we're joined down the line by David Kayhan in Paris to discuss the merger. Hi Guys Peter Tell us first why these super super mergers have been considered at the moment. What's the rationale behind them earn? What's the most notable recent mergers in the sector so call makers of facing stresses from a lot of a different direction at the moment? They're facing falling sales in the facing the need to invest in some quite expensive new technologies electric cars. They need to sell to the C O talks across Europe and China as well as driverless vehicles and other such technologies that looking at now. What are these things cost money? And it makes very little sense for all of the world's carmakers call makers independently to spend the billions and billions that they need to develop this technology. It's much more sensible for them to tie up. A great proponent of this theory was Sergio Marconi the late former chief executive of fit cruiser who oversaw the merger between Fiat and Chrysler itself. WHO said the comic is need to tie up in order to avoid duplication teaching the list massive spending that they have to make? It's just too much cash. They need to splash right. So what are the relative strengths of the Fiat group. Compared to pressure so both companies are incredibly complementary geographically Peugeot exists almost entirely in Europe asam stuff outside Europe. But it's very very strong strong in Europe. Fat Chrysler despite being called fat is in fact predominantly in North America organization. Almost all of its profits. Come from selling pick-up trucks and very large. SUV's in the North North American region. It owns the ram heavy truck brand it ends jeep globally Lens Africa and Maserati and so for these companies they complement each other geographically and and what PSA has shown with its takeover of Opal which owns Fox hole in the last few years is that this is a company that can manage scale in European mass mass manufacturing so it already owns a number of volume brands in Europe. It audience Persian and sit. Trinidad's open phones Vauxhall. You would add to that fat if this merger went ahead head. And they've already showed that they can make these efficiencies of scale work within a single region within Europe which would be an advantage but PSA really although it's had an incredible Rana that's very profitable. Its growth is sort of come to an end really needs to try and push into North America which has plans to do unto its own steam and it really needs a serious premium. AM nameplate a merger with fair crews which is very strong in North America and has offer may a massive rati and jeep brings that I say so David John Elkin. WHO's the one of Italy's Agnelli families? The Italian billionaire behind axle which controls Fiat Chrysler and also the brains behind the proposed merger but his his attempt to do a similar deal with Renault early. This year failed at this plenty of examples of failure here. What happened there? Why did I go wrong? Defensive Him you ask really. FCA In parallel talks with Reynaud and Persia for quite a while but particularly since the start of the year. What people have told us that the whole time? They're in these as talks. They actually wanted runner. That was number one target. But I didn't know that so Iran may the news was given to the profoundly particular and generally that they were going to go over a nice over a good the only problem from. Sei's point of view. Is that across the table from the Reynolds argest shareholder was the French state. You might know that Renos found itself in a particular situation with its Japanese partner Nissan. And what the French state said was at Notre for the merger to go ahead. They wanted the explicit it consent agreement approval of Japan. They walked away. It was like ten days. The whole thing collapsed. It was a drama France. Tickets blamed by some sides if you took the French state on background they say maybe the deal wasn't as good for Renos. It could have been directing normal shareholder but either way John alcon sure. The French date didn't like what it was doing walked away dramatically and that leads us to PSA so would perjures Kosta virus preach batter partner. Do you think it depends. I mean I would cautiously say yes. Tavarez is a big personality big. Co elkhound is buying in is a guy who's not. It's going to take a backseat in any way he's going to be a CEO in charge driving strategy and Alcon will be classic chairman. You'd imagine it's kind of return to demark relationship. He had before maybe it was something. We didn't think he was totally on board. With an part of the reason he went Reynaud but where the project is definitely at nicer fit for FCA. Is that the French state is far less hands on this company. It has a shareholding but in Reynaud you could say that the French state is more like a family company shareholders. Huge emotional ties. It's the largest shareholder as well in Persia. It's a much more traditional shareholder it doesn't lockinge stakes. It's the joints are shareholder shareholder with both the Persian family and China's Dongfang. So you can see why it might be a better partner. Yes so notice. That are lex pages. Describe cried Mr Tavarez's quadri-lingual what kind of big personality is he. What kind of figure does he cut in the car? Industry globally so taveras is renowned and as one of the most capable executives across the automotive industry. If you look at his track record is performance. He came into Persia when they will almost bankrupt. He oversaw sore huge turnaround at the company then bought Opel. This was a company that General Motors couldn't make money out of twenty years. They turned that around in very short order and yet at the same time he doesn't have the gigantic room. Filling ego of some of the other executives in the auto industry would be more akin to traveling head of state when they it went overseas. Savar as who is a cost cutter to the core when he comes to the UK to visit the Vauxhall plant at Luton flies into Luton on EasyJet buys is is sandwiches in the corner shop before getting in a taxi to go over to the plant in his better than eight. Uneasy gentleman with US possibly explanation. But it's also true that he really has a way a of identifying with the ground level workforce as well as the executives and saying guys. You are the team here is up to you to deliver this turnaround plan has to go ahead. And he's been quite good actually particularly in the Opel turnaround of avoiding plant closures. No everybody thought when he bought Opel there we're going to have to shut factories and he said we're going to do this plan without shutting factories and they brought he managed that and what we expect from the FCA deal if it goes ahead. Is that going to make a commitment not to close any of either. I accompanies plants as a result of the turnaround as a result of trying to make savings here and so two Varas is seen. At least at the highest levels of most capable automative executives that gives at the moment and by some people is ranked the best glibly anywhere interesting David. How's he viewed inside of corporate France? If you like with a problem we have a terrorist journalist. This is not enough that stuff to say about him. It's genuine issue now. He's considered in France and piracy to be one of the best. I mean one of the reasons. The French government are supporting. This is because Tabarez is there. He's seen as being a safe pair of hands he sees having done a really great trainer ended Persia and he's seen as someone that they can trust in putting together this merger that's right but he has this cultural index territory. The allows him to associate with work in different countries so when he bought Opel everyone was naturally worried Opel. They were about to get fired but he walks into the headquarters Opel in Germany. All the stuff of April assembled there and his opening lines to the Marin German now he doesn't speak German but he'd learned some opening lines in German and was greeted with a big round of applause but also with the sense in the room that this was a guy who was on their side. It makes a big difference right okay. Personalities a site. Let's let's talk about some of the numbers here. What are the terms of the proposed? David I mean where would the merge creeped based for start. Well that's a very good question when that we don't really know the answer to yet. The idea is multiple As it stands but just very quickly so it's a fifty fifty all stock merger and there's going to be a special dividends and payouts. Either side equalized equalized values but analysts are suggesting that this looks like PSA buying FCA and part of the reason you can say that is the construction of the board Komo correct. He has eleven people five each plus Tavarez so the governance is tilted towards Paris. We will be watching to see where the operation headquarters is really eighty based where Tavarez sits even if I think Peter you might jump in here as well. FCA They're used to bring multiple countries in a way that maybe we'll create tensions. Well this brings us very nicely into the cultures of both companies to. FCA was a company that was borne out of this merger between Fiat and Chrysler and as such as a headquarters in London but but a major office insurance and a major office in Auburn Hills. Chrysler is based and whereas many car companies are deeply rooted in the national culture. These guys genuinely feel we'll multinational and they genuinely feel more global and they've actually culturally made a merger work which historically the consciousness quite difficult to do right. We saw DaimlerChrysler the fall apart we saw Ford Not Really Gel with any of the premium brands. It owned Volvo Janke Arrest Martin etc and at the same time you've got. PSA which also is culturally in quite an international fit because it has a British Brandon Vauxhall at has a German Brandon Opel and again it's made an automotive merger work in recent history and so one of the biggest barriers to auto mergers is cultural and it always is and it's the factions between different rival governments wanting a place at the table and to the fact that you've got to companies that are sort little mood globally cultural and have recently made big complex multi-country images work does bode quite well for these. Two companies being able to culturally fit together. which is a huge hurdle and obviously not a financial one but a key one that really needs to be overcome for any automotive motor to work now to think that assuming this goes through? Do you think there will be cost-cutting. This time we've spoken about how Mr Tavarez avoided this in the past but do we think an ax will fall this time around. They've talked about Oh savings of three point seven billion euros which they go to try and realize eighty percent of those within the first couple of years of the deal going through now. They haven't broken out exactly where that comes from. They've said it's not going to be plant closures if you look at. PSA during open takeover they managed to save a lot of money by shortening labor hours thousand doing various things around the way they utilize space in the factory floor but a big chunk of savings in a big rationale for the deal in the whole is as we said at the start to avoid duplicating investment it costs so it'll be avoid. Investment cost into electrification and avoided investment costs not just intellectuals -cation autonomy but also inter individual platforms so you built a car on. They'll merge those together they'll get huge potential savings and of purchasing components together all kinds of classic industrial merger synergies. I mean David. Is that message sticking in France. I don't think this merger would have been given the green light or been greeted with such political approval as it has been so far if it hadn't been for guarantees. He's about jobs and I think that's true in Italy as well. I don't think they're going to be closing plants. I just don't think it's politically tenable as Peter says for. They're going to be. Finding the savings is in our D adoption. Those kind of things. So if you're a betting man do you think the magic. We'll go ahead and if it is who then are the biggest rivals to the merged group. Rule the move music safaris overwhelmingly positive. The fact the French government seemed to be behaving better than they did last time older. That's not a terribly high bar bodes well for the whole thing going through now. What we're expecting expecting is it? Within the next sort of two three four weeks we'll get a memorandum of understanding between the two companies that will set out potentially more details about synergies potentially more details about management structure and various other things. Maybe even headquarters details then. Obviously the whole thing has to go to show. Does it both companies who have to approve them is quite difficult to to see them derailing that and then obviously it has to go through various other regulatory huddles. They also have to deal with antitrust issues so this will be the largest carmaker in Europe. It could be bigger than Volkswagen that market share in some countries such as constantly will be very high so they may have issues with that but no one seriously thinks that's going to derail l. the deal so assuming everything goes smoothly you could see it close within say nine months potentially two year. There's always a bit of leeway with these things either side and then obviously they will be the fourth largest in the world behind reminisce. And if you're treating those companies is one that's the whole other but also Volkswagen Toyota and on readiness and those three make ten million cars a year. These guys will make eight and a half million calls year that puts them slightly ahead of General Motors. You make about eight but they will be easily within the global top five for well. This is going to keep busy for the next year or so. Thanks Peter an thanks David thank you wolf listening."