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Why FCA-PSA merger is no quick fix for their China problem

BEIJING — Fiat Chrysler and Peugeot owner PSA's merger is unlikely to provide a quick fix to their problems in China, as both companies have long struggled to find the right products at the right price for the world's top car market, analysts say. The companies said on Thursday they aimed to reach a binding deal in the coming weeks to create the world's fourth-biggest automaker by production volume. But scale alone will not make Italian-American Fiat Chrysler Automobiles (FCA) and France's PSA Group more competitive in a market where they have been slow to adapt to trends and win over consumers, leading their sales to lag far behind foreign rivals such as Volkswagen and General Motors. PSA does not have enough competitive SUV models, and neither company has enough electric and plug-in hybrid vehicles, or enough cars packed with hi-tech features for Chinese tastes, analysts say. In a market where 28 million cars were bought in 2018, FCA sold just 155,215, while PSA sold 257,723, according to consultancy LMC Automotive. At the end of September, FCA had a market share of 0.5% in China's passenger car market, while PSA's was 0.6%. Analysts say they have been squeezed by Japanese and local brands, which have product line-ups better suited to Chinese tastes at cheaper prices. "Both companies are very home-market centred and have failed to adapt to shifts in Chinese market preferences," said Bill Russo, head of Shanghai-based consultancy Automobility Ltd and a former senior Asia-based Chrysler executive. "Neither company has recognized and delivered on the trends of shared, connected and electric vehicles,” Russo said. That makes them ill-prepared to deal with further shifts in the Chinese market, which saw annual sales contract for the first time since the 1990s last year and is expected to see another drop this year. "China's overall market is experiencing a transmission and adjustment period," said Alan Kang, a Shanghai-based senior analyst at LMC Automotive. "It is very hard for these two companies, which do not have enough competitive up-to-date products, to quickly recover with the merger." FCA has a partnership in China with Guangzhou Automobile Group, which said on Thursday it backed the merger. PSA has been trying to reboot its operations in China.

Fiat Chrysler's Q3 profit boosted by strong North American earnings

MILAN, Italy — Fiat Chrysler Automobiles (FCA) reported a 17 percent jump in third-quarter adjusted operating profit on Tuesday, helped by a strong performance in its key North American market and improving operations in Europe and Latin America. The world's seventh-largest carmaker still makes the lion's share of its profits in North America, so improving, or at least maintaining, its margins there is a key focus. The carmaker reported an 8 percent adjusted operating profit margin in the region, up from 7.6 percent a year ago, despite a drop in sales and shipments. "FCA's profitability in North America remained strong in the quarter despite a weakening market there," a Milan-based analyst said. FCA's profitability compares with an 8.3 percent North America margin reached in the quarter by bigger U.S. rival GM , showing CEO Sergio Marchionne making progress towards his goal of closing the margin gap with GM and the company's other U.S. rival, Ford, by 2018. The company's confirmation of its full-year outlook also pushed shares higher, a trader added. The stock was up 2.8 percent by 1129 GMT, outperforming a 1 percent rise in the European auto index. FCA has been retooling some U.S. factories to boost output of sport-utility vehicles (SUVs) and trucks while ending production of some unprofitable sedans to strengthen profitability as the U.S. car market comes off its peak. The company said a drop in North America shipments due to lower fleet sales and discontinued models was partially offset by higher deliveries of Ram trucks and two models from the Alfa Romeo stable: the Stelvio sport utility vehicle and Giulia sedan. Profitability also improved in Europe, helped by sales of the Stelvio and the new Jeep Compass, and Latin America, while margins at Maserati remained strong at 13.8 percent due to strong demand for its first SUV, the Levante. In a later conference call, investors are looking for hints on the new strategy to 2022 which the company promised to unveil early next year. Chief Executive Sergio Marchionne said earlier this year that FCA would streamline its portfolio and that components businesses, including Magneti Marelli, would be separated from the group, possibly via a spin-off. While FCA confirmed its targets this year, doubts remain about its exposure to a weakening U.S. market, recall costs and potential fines over emissions after it was targeted by European and U.S.

China's Geely says it has no plan to buy Fiat Chrysler — as FCA stock leaps

HONG KONG — Chinese carmaker Geely Automobile denied media speculation on Wednesday that it planned to make a takeover bid for Fiat Chryslerk Automobiles (FCA), the world's seventh-largest automaker. Geely was one of several Chinese carmakers cited in by Automotive News, which said representatives of "a well-known Chinese automaker" had made an offer this month for FCA, which has a market value of almost $20 billion. "We don't have such a plan at the moment," Geely executive director Gui Shengyue told reporters at an earnings briefing, when asked if Geely was interested in Fiat. He said a foreign acquisition would be complicated, but he did not elaborate. "But for other (Chinese) brands, it could be a fast track for their development," Gui added. However, a source close to the matter said FCA and Geely Automobile's parent firm, Zhejiang Geely Holding Group, had held initial talks late last year, without disclosing their nature. The source confirmed Geely was no longer interested in FCA, noting that the parent company had only three months ago announced its first push into Southeast Asia with the purchase of 49.9 percent of struggling Malaysian carmaker Proton, a deal that also included a stake in Lotus. Geel's denial failed to dent FCA's stock. The price of its Milan-based shares has jumped more than 10 percent to a 19-year high since Automotive News first reported on Monday, citing unnamed sources, that FCA had rejected the Chinese offer as too low. FCA stock on the New York Stock Exchange rose sharply on Monday from $11.60 to $12.38 and on Wednesday was trading at $12.84. FCA declined to comment on Wednesday. FCA Chief Executive Sergio Marchionne has repeatedly called for mergers as a way of sharing the costs of making cleaner, more advanced cars, but he has repeatedly failed to find a partner and retreated from his search for in April, saying FCA would stick to its business plan. He has also spoken of spinning the successful Jeep and Ram divisions off from FCA. Europe's largest carmaker, Volkswagen, and General Motors have both said they are not interested in talks with FCA. On Wednesday, Geely Automobile reported a doubling of first-half profit, above expectations, as cars designed with Sweden's Volvo won over domestic consumers. Volvo is a unit of the Zhejiang Geely group, and has recently announced it will share its technology with Geely.