China was pretty much left out of the merger deal between Groupe PSA and FCA Group that will create the world’s fourth largest automaker by sales behind Volkswagen Group, Toyota and the Renault-Nissan-Mitsubishi Alliance (see Carlos Tavares on China after PSA-FCA merger agreement: we have homework to do).
Except the part about Groupe PSA shareholder Dongfeng having to sell part of its 12.2 percent stake in the French automaker resulting in an ownership of 4.5 percent in the merged entity to clear way for U.S. regulatory and anti-trust approval.
The merger was focused on getting synergies out of the two companies’ profitable business regions of North America, South America and Latin America as well as technology and model lineup complementarity. So even though the merger deal is between two global automakers, something was missing with China not in the picture.
At least not yet.
The common thread between Groupe PSA and FCA Group is that both their business in China are currently in a funk. Disappointing considering that Groupe PSA has been in China for nearly three decades and FCA Group with AMC and Chrysler in the early days through the Beijing-Jeep joint venture has been in China for nearly four decades. In other words, early mover advantage does not seem to apply for these two companies in China.
Jeep, the only global brand out of the brands that the two companies operate in China, is tanking in sales. Sales of both Peugeot and Citroën brands as well as the premium DS brand have been falling off a cliff. Market shares of American and French brands in the first 11 months of 2019 dropped to 9.1 and 0.6 percent respectively from 10.6 and 1.4 percent in the same previous period.
Groupe PSA CEO Carlos Tavares said in a conference call after the merger deal signing on December 18 that there is a lot of homework to do on China, but that will be deferred to after the deal closes.
That homework starts out with the product, channel and pricing strategies and figuring out where both companies lack and can improve.
Then comes the JV relationships with Dongfeng and GAC Group as well as a host of other partners once the merged entity comes into being. The fact that Groupe PSA and partner Chang’an are both selling their stakes in the Chang’an-PSA JV is a huge warning that the same could happen at the other JVs, although Groupe PSA has recently reiterated that it would not leave the Chinese market.
Unlike their German, Japanese or even American counterparts, Group PSA and FCA Group also lack the communications presence in China and there is no standalone China unit as far as governance is concerned.
Sure, both companies have some of the world’s most iconic brands, quite a few of which are already over 100 years old, but they have lacked behind in offering products with the latest technologies as far as CASE (connected, autonomous, shared mobility and electrification) is concerned, which is huge in China for success.
Indeed, there is a lot of homework to do and there is not a lot of time to spare.