LONDON: Van drivers have a reputation for aggressive driving. In that case, the proposed merger between carmakers Peugeot and Fiat Chrysler Automobiles, could be in for a bumpy ride. Their vast combined share of the market for light commercial vehicles makes it hard to swerve around European Union regulators. But there is a solution that could benefit the Italian Agnelli family twice.
Peugeot and Agnelli-controlled Fiat want to close their deal by the first quarter of 2021 and get on with extracting a targeted 3.7 billion euros in annual cost savings. But competition authorities in Brussels stand in the way. They have launched a four month-long probe into the deal, focusing on the two companies’ share of the van market. Their concerns are justified: Peugeot and Fiat together would account for around one-third of EU van sales, rising to two-fifths in France and nearly half the market in Italy.
The carmakers will argue that a niche in which rivals Volkswagen, Renault and Daimler also have significant shares remains competitive. Moreover, continued investment in electric vans necessitates economies of scale. Rival Volkswagen, for example, recently announced a joint venture to manufacture the vehicles with American rival Ford Motor.
There’s a good business at stake. HSBC analysts reckon the auto segment generates average operating profit margins of about 10%, above the group margin at both Fiat and Peugeot. But relatively high profitability also makes it harder for the pair to defend substantially increasing their market share. The EU could order them to offload all or part of the business as a condition for allowing for the merger to proceed.
Selling some models to another large competitor would arguably just reshuffle existing market share. A surer way to meaningfully boost drivers’ choice would be to offload part of the business to a diminutive rival like Milan-listed CNH Industrial, which has substantially less than one-tenth of the EU small van market.