Question

Flag Consolidation mergers such as Chrysler-Fiat and phenomenal sales growth in China have restored two types of cost advantage for the Big 3. What might they be?

Answer 1

1) Fiat chrysler and rival PSA group, owner of peugeot and vauxhall, have confirmed a merger deal valued at $50 billion in china. Statista reports that in the two-year period from 2017 to 2019 some 85.9% of automobile sales were made under finance schemes. Even individual with poor credit histories can be offered finance. Maybe, the view is that any credit facility is secured against the vehicle itself, however, that vehicle is from day one an asset whose value depreciates rapidly.

Merge and Cut Cost

So, it is no suprise to learn that this latest auto merge aims to deliver annual cost savings of $4 billion through sharing purchasing agreements and using combined technologies. To create cost reduction, the answer has been judged to lie in "economies of sale". The tie up will create the world's fourth-largest carmaker. Getting this deal across the line will be welcome news for FCA, as it is their second attempt at a merger this year. The first was a proposal to merge with french rival renault for $39 billion.

However, this deal was abandoned in june when the french government objected as it has a 15% stake in Renault. Had that deal proceeded it would have created the world's third-largest carmaker. Still FCA has achieved a merger at last and the deal with PSA should complete within the next 12 to 15 months. However, this will require China's stake in FCA by selling 30.7 million shares to PSA.