Since before the bailouts of 2009, industry and financial mavens have been calling for the merger of Fiat Chrysler Automobiles and General Motors or, failing that, the acquisition of FCA by GM.
With the current discussions between GM and PSA Group over the possible sale of Opel, the joining of Fiat Chrysler and GM is once again being bandied about – and it still doesn’t make sense.
PSA buying Opel raises a number of questions: General Motors has lost billions on Opel. PSA returned to profitability in 2015 after three years of cost-cutting and it still needs to deal with its loser DS upscale brand. It’s easy to see the upside for GM; a bit harder to see anything positive for PSA unless GM is willing to underwrite a large percentage of the costs that would be involved.
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By GlobalDataGM’s motivation is easy to see: it wants to increase profitability and is more than willing to give up volume to achieve that goal. This is the big reason that GM has chopped daily rental fleet sales and the big reason it is difficult to see a benefit for GM taking on FCA.
Any near-term acquisition of Fiat Chrysler is going to come with billions of dollars in net debt which in itself would be a good reason for GM to shy away.
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The majority of Fiat Chrysler’s profits come from North America, the region where the companies’ product lines have the maximum overlap. There is no reason for GM to keep either the Chrysler or Dodge brands. The high-performance niches can be filled by the Camaro and Corvette and the large sedan requirements can be handled by the Impala. The Pacifica is the only line that GM might want to keep and it’s easily rebadged as a Chevy or Buick. Windsor Assembly remains open; Brampton closes as GM is highly allergic to Canadian manufacturing.
Jeep is often touted as a plum, but there would be cancellations in that line, as well. The Renegade might be kept for the European market as GM would definitely want to keep the Fiat 500X, which is among the bestsellers in its segment, and the Renegade is built in the same plant. At the end of 2016 Fiat Chrysler ranked third in the European compact SUV segment.
The Wagoneer? With the Tahoe, Suburban, Yukon and Escalade, GM doesn’t need another large, upscale SUV. Save the money; shut down the Warren Truck Plant.
The Wrangler, which has no rival in the GM lineup, would survive, and it’s possible the Grand Cherokee could actually replace an existing GM SUV, but the new Compass and Cherokee would be potential cuts; GM already has competitive products selling under the Chevy and GMC brands. That takes care of Belvidere Assembly.
From the Ram Brand, the survivor would not be the pickups, but the ProMaster van, which already outsells every commercial van except the Ford Transit and the Chevy Express. Combined with the Express and GMC Savanna, the ProMaster could give GM a shot at unseating Ford as the top US market van source. Without the pickup, there’s no need for Sterling Heights.
Then there is the matter of redundant supplier factories and their employees and more than 2,000 dealerships in the U.S., Canada and Mexico. Total job losses would likely range well into the hundreds of thousands as cuts and business closures spread through the economy and could quite possibly spur a recession which the new administration would likely take steps to avoid (ie not approving the acquisition on antitrust or other grounds). Even if it was approved, GM would take a huge financial hit for severance, lawsuits and warranty liabilities.
But it all goes back to the reason that GM is considering offloading Opel onto PSA Group: giving up volume to increase profits. With that in mind, it makes less sense than ever for GM to want any kind of tie-up with Fiat Chrysler.
Bill Cawthon is just-auto’s US sales analyst
