What a week it has been. More like a half-week, actually.
For it was within that abbreviated timeframe we officially heard that Fiat Chrysler and the PSA Groupe (Peugeot and Citroën) were talking merger. The news spilled out late Monday and by Wednesday the two automakers came to terms. Today, news of the planned merger was announced, setting in place what will become a near $50 billion entity, which currently produces 8.7 passenger vehicles annually.
Merger talk doesn’t take place in a vacuum. Indeed, soon after the FCA broke off talks with Renault to merge in June, rumors of PSA’s interest in FCA came out. All we’ve heard is what was reported this week. But talks have been going on for some time, carried under the cloak of secrecy.
We shouldn’t be surprised that the two automakers are connecting as the entire industry is ripe of consolidation. With the deal nearly certain to pass, it likely will trigger further consolidation with perhaps Ford and Volkswagen following. Yes, these two automakers seem like prime candidates for an alliance or outright merger. There are several reasons why, which we’ll explore here.
Volkswagen and Ford: The Next Tie-up?
1. The two companies forged a global alliance.
In January 2019, Ford and Volkswagen announced that the two companies were forging a global alliance, but without cross-ownership. Pickup trucks and commercial vans were the first vehicles mentioned where collaboration will take place.
2. An EV/AV alliance follows.
In July, Ford and Volkswagen announced that the two automakers would begin sharing electric vehicle (EV) and autonomous vehicle (AV) technology. VW is investing in Argo AI, which is Ford’s self-driving technology, while Ford will build at least one vehicle based on Volkswagen’s Modular Electric Toolkit (MEB) architecture for sale in Europe.
3. Ford cuts back on cars.
The Ford Motor Company still produces cars, but the U.S. market will soon offer only the Mustang, pickup trucks, and lots of utility vehicles. With a VW tie-up, Ford might find it affordable and sensible to sell small cars again in the U.S., especially as the merged entity shaves costs. In any case, if the market suddenly shifts to cars again, Ford will have the platforms in place to build what’s needed.
4. The Rivian factor.
We already know that Ford owns a slice of Rivian, the upstart electric vehicle maker. Rivian will begin producing an SUV and pickup truck by the end of 2020. Ford will have access to Rivian’s skateboard electric vehicle architecture, which is certain to produce at least one model for the Ford brand. Volkswagen wants a pickup too and might utilize Rivian besides tapping the Ford Ranger for its own purpose.
5. Big is better.
When it comes to building passenger vehicles, the bigger you are, the better. Or at least that is the thinking in this industry. Yes, “economies of scale” and “synergies” are realized through smart collaboration. But there is another factor, bragging rights, which the new company led by Volkswagen would claim as sales would top an estimated 14 million units annually, putting the new automaker well in front of the pack.
What About GM?
With FCA and PSA hooking up and Ford and Volkswagen presenting a strong argument for consolidation, what about GM? At one time we might have seen GM go it alone or acquire another automaker, but that’s not going to happen.
Fresh on the heels of a costly labor agreement with the UAW, GM is ripe for the picking. We don’t see Toyota or Hyundai/Kia interested nor is it likely Honda with its independent streak planning to do likewise. There’s a chance GM might find a place in the Renault-Nissan alliance, but we think a Chinese suitor is just as likely.
In any case, the industry is changing and most likely will see additional mergers, acquisitions, and alliances in the months ahead. FCA and PSA triggered the tsunami. Now we’ll witness how other automakers avoid getting consumed by the waves of change.