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Fiat Chrysler and Peugeot in accord to unite

The boards of Fiat Chrysler Automobiles and PSA Peugeot on Wednesday signed a binding merger deal creating the world's fourth-largest automaker.
The boards of Fiat Chrysler Automobiles and PSA Peugeot on Wednesday signed a binding merger deal creating the world's fourth-largest automaker.Thibault Camus/Associated Press/Associated Press

Fiat Chrysler and PSA of France said Wednesday that they had agreed to the terms of a merger that would create the world’s fourth largest automaker.

The companies said they had signed a binding agreement formalizing the merger, announced in October.

The accord brings Fiat Chrysler and PSA, the maker of Peugeot and Citroën cars, much closer to creating a carmaker bigger than General Motors. But there will remain the task of integrating the companies. The companies said Wednesday that it would take another year to 15 months to close the deal.

PSA has shown no sign of second thoughts about the merger even after Fiat Chrysler became the target last month of a racketeering lawsuit by GM. The complaint asserts that Fiat Chrysler bribed United Auto Workers officials in contract negotiations to get an advantage over GM. Fiat has called the suit “meritless.”

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Carlos Tavares, the head of PSA, said Wednesday that he fully supported Fiat Chrysler in its denial of the accusations. “We have obviously done our due diligence,” he told reporters during a conference call.

The accord confirmed that Tavares would be the chief executive of the new company, and that John Elkann, the chairman of Fiat Chrysler, would be the chairman. Elkann is a scion of Italy’s powerful Agnelli family, which has long controlled Fiat.

In an e-mail Wednesday to Fiat Chrysler employees, Elkann said Mike Manley, the chief executive of Fiat Chrysler, would be part of the combined operation “alongside” Tavares, but did not say in what capacity.

By combining, Fiat Chrysler and PSA will surpass Volkswagen as the market leader in Europe. Between them they will have more than 400,000 employees and sales worldwide of 8.7 million vehicles.

In addition to Fiat, Peugeot, and Citroën, their car brands will include Alfa Romeo, Dodge muscle cars, Ram trucks, Jeep SUVs, Opel and Vauxhall cars, and Maserati luxury cars. The combined company is particularly strong in SUVs, the fastest growing segment in Europe. But it is weak in luxury cars, a market dominated by Audi, BMW, and Mercedes.

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For now, there are no plans to sell Peugeot and Citroën brands in the United States, the firms said.

Perhaps the most important rationale for merger is that it will allow the companies to share the cost of developing electric cars and autonomous-driving technology, which world automakers expect to be crucial in the coming decades. Electric cars are needed to meet stricter emissions regulations in Europe to avoid steep fines.

“Our merger is a huge opportunity to take a stronger position in the auto industry as we seek to master the transition to a world of clean, safe and sustainable mobility,” Tavares said in a statement.

But analysts regard the two carmakers, which are still trying to come up with a name for the new entity, as an imperfect match. They share some weaknesses, including a dependence on the declining European market and the lack of a strong presence in China, the world’s largest car market by far. The new company will get almost 90 percent of its sales from Europe and the United States.

The merger has the blessing of the French government, which owns 12 percent of PSA. The agreement “is very good news for France, for Europe and for our automotive industry,” Bruno Le Maire, the French minister of the economy and finance, said in a statement Wednesday. “It represents an important step in the creation of a European champion.”

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The government earlier this year derailed an attempt by Fiat Chrysler to merge with Renault. PSA and Fiat have said they will not close any factories, pleasing political leaders, but analysts are skeptical that they can keep that promise when sales are under pressure around the world.

Company officials reiterated Wednesday that they would not close any factories and said they would not cut factory jobs. They did not explicitly rule out job cuts in other areas.

The companies aim to save billions of euros a year by combining functions like purchasing, marketing and information technology. Those savings will be hard to achieve without reducing the number of office workers.

The largest shareholders have agreed to back the merger, Fiat and PSA said, virtually assuring its approval. Those include the Peugeot family; Exor, the holding company for Agnelli family interests; and Dongfeng Motor, the Chinese automaker that owns 12 percent of PSA.

As part of the accord, Dongfeng, which has a joint venture to sell Peugeots and Citroëns in China, will reduce its share in PSA so that it ends up with 4.5 percent of the new entity. The French cars have not sold well in China, and Dongfeng appears to be scaling back its relationship with PSA.

One reason may be that Fiat and PSA do not want to antagonize US officials wary of Chinese influence. Tavares said the new company would continue to work with Dongfeng and try to turn around the business in China.

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