Fiat-PSA Tie-Up, the Only Solution to Compete VW image

Although this plan was rejected for a long time, Fiat and PSA/ Peugeot-Citroen had to face it. If they want to close the widening gap with European market leader Volkswagen, they have to close a deal and become partners.

“Peugeot definitely needs more scale. They resisted the idea for a long time, but now it’s caught up with them,” declared London-based UBS analyst Philippe Houchois.

VW has already out-spent PSA and Fiat with investments of EUR62 billion in new models in 2011-2016, which is in no way close to PSA’s EUR3.7 billion annual investment for 2008-2011 and EUR26 billion for 2010-2014 by Fiat and Chrysler.

Taking the fact that 45% of Fiat sales in 2011 and 54% of PSA’s were in Europe, the best plan is to get more exposure here.

“Nobody wants more exposure to Europe, but if you’re already there then you need scale,” said UBS’s Houchois.

On June 30 PSA’s industrial net dept was of EUR1.65 billion and is expected to hit a significant full-year auto division on February 15. Fiat is doing very well too.
The company is expected to cut its 2012 targets. Although PSA sees this tie-up as a “social and industrial catastrophe,” it is the only solution one can find.