PSA rules out merger with Fiat Chrysler

French parent company will complete its recovery plan before considering tie-up with other brands.

By Jim Holder, Autocar UK

20 Apr 2015

2923 Views

PSA's recovery plan could take affect as early as next year.

PSA Peugeot Citroën boss Carlos Tavares has ruled out a potential tie-up with Fiat Chrysler or other partners – but only until the French firm has completed its financial turnaround. The French parent company will complete its recovery plan before considering a tie-up with other brands.

Speculation has suggested that PSA, now co-owned by Chinese car maker Dongfeng and already working on joint ventures with Toyota and GM, could merge with Fiat Chrysler to underpin the growth of both firms.

While PSA is strongest in Asian and European markets, Chrysler is strongest in the US, while Fiat and Alfa are undergoing revival plans.

PSA sold just over 2.8 million cars last year, while Fiat Chrysler sold 4.4 million. Fiat Chrysler boss Sergio Marchionne has previously claimed that a car maker will have to sell six million vehicles in the future if it is to be sustainable. But Tavares has insisted that his firm must complete his ‘Back in the Race’ recovery plan before it considers any mergers.

The plan was launched after Tavares became boss last year, after PSA fell in to heavy debt and the governing Peugeot family was forced to sell a stake in the loss-making firm to Dongfeng.

The Back in the Race plan calls for PSA to regain a recurring positive cashflow by 2016 and €2 billion (Rs 15,288 crore) in group operating free cashflow over the 2016-2018 period. The firm has also targeted a two per cent operating margin in the automotive division by 2018, growing to five percent between 2019 and 2023.

PSA lost £3 billion (Rs 29,529 crore) in 2012 and £ 1.8 billion (Rs 17,717 crore) in 2013, before making a small profit last year. “For the time being we will focus on our own plans,” said Tavares.

“We still have work to do – and it would be foolish to lose focus on our turnaround plan. Once we have developed the fundamentals it will be time to assess our possibilities,” he said.

The Back in the Race plan is set to reach fruition by 2018, but many analysts say Tavares could hit all his targets as early as next year.