PSA Peugeot Citroen, which has long resisted proposals for cooperation made by Fiat could eventually decide that an alliance with the Italian carmaker is the only way to reduce the German advantage of Volkswagen (VW), Europe’s market leader. Investment capacity and geographical presence of VW make producers more vulnerable than ever to stay far behind, if not associated to reduce capacity and to share development costs of new cars.
“Peugeot is clearly in need to develop. It long opposed the idea”, said Philippe Houchois, an analyst at UBS in London.
VW is already well ahead of its European competitors, with plans to invest in new models worth 62 billion euros for 2011-2016. Peugeot has allocated for the period 2008-2011 average annual expenditures on research and development investments, worth 3.7 billion euros, according to the latest annual report. Fiat and its U.S. division Chrysler have forecast for 2010-2014 investment funds of 26 billion euros. Trends are negative for the Western European market, as this year is expected a decline of 6%, which will make extremely tough the price competition, while automakers are struggling on major markets such as Brazil, Russia, India and China.
“Nobody wants more exposure to Europe, but if you are present there, then you need size”, said Houchois.
Fiat made last year 45% of its sales in Europe and PSA 54%, the highest rate among major car manufacturers, according to Automotive CML. The decline in sales of both companies was much higher than 1.4% of the European market. Fiat deliveries decreased by 12% and 9% of the PSA, while VW sales rose 8%. BMW and Hyundai-Kia saw sales increases on the European market. Fiat and Chrysler’s general manager, Sergio Marchionne, said recently at the Detroit auto show that “certainly he will look” at PSA Peugeot, and he added that Europe needs a new auto giant to compete with VW’s market share, of 23.3%. He however dismissed press information that there are negotiations between Fiat and Peugeot.
While Renault has an alliance with Nissan and joint programs with Daimler, Peugeot is the only major individual producer that would suit Fiat, but implementation of an alliance is not easy. PSA representatives refused to answer directly to Marchione’s remarks on the options for collaboration. Fiat suffers from excess capacity, while production at PSA Peugeot Citroen is spread to several factories in France, which are too small and expensive in order to remain profitable in the event of a price war, commented Houchois. Fiat and PSA have been negotiating for a partnership in 2008, which have not materialized, and then the Italian group took over Chrysler.
