Now that Fiat has apparently lost out in the bidding for Opel/Vauxhall, speculation has risen concerning alternative strategies that Fiat might employ to become part of a carmaking group with bigger scale. PSA Peugeot Citroen is in the frame again.

And analysts say that PSA is also looking for a suitable partner.

However, Sabine Blümel, analyst with Creative Global Investments (LLC), told just-auto today that the industrial logic of three-way merger Fiat-Chrysler-PSA has more negatives than positives.

For one thing, she says, PSA seems more open to a partnership on a grand scale, though the family wants to remain major shareholder.

"We believe that conflicts over control and ownership would prevent a three-way merger between Fiat-Chrysler and PSA.  Even if FGA [Fiat Group Automobile] would be spun off and contributed to a larger car company including Chrysler and PSA, we believe that Sergio Marchionne would like to keep control of that new entity and we doubt that the Peugeot family would be able to become the major shareholder," she says.

While a Fiat-Chrysler-PSA combine would have annual sales of some 6m units and improved global footprint for its constituent parts, Blümel maintains that the necessary capacity reduction in Europe is a 'political minefield'.

"Based on capacity utilisation in 2007, of 75% at Peugeot and 80% at Fiat, the combined structural excess capacity is some 1.3m units. We doubt that capacity reduction at this scale is politically achievable in a cross-border merger at this stage in the economic crisis," she says.

Blümel also highlights a brand positioning problem in Europe.

"Fiat and PSA face the problem of being in the volume sector with little pricing power and achieve among the lowest unit-revenue among European OEMs," she says.

And their shared specialisation in small cars also carries a disadvantage.

"In view of CO2 legislation there are no benefits as both seem to be able to achieve the strict limits on their own," Blümel adds.

Dave Leggett