Peugeot and Fiat owners confirm £40bn merger plot to shake up car giants

The owner of British car company Vauxhall is in talks to combine with Fiat Chrysler in a £40 billion mega-merger to reshape the global car industry.

French giant PSA, which owns Peugeot, Vauxhall and Citroën, today confirmed discussions with US-Italian rival Fiat Chrysler Automobiles (FCA), teeing up what it described as “one of the world’s leading automotive groups”.

The deal would drastically alter the balance of power in the car industry, creating a Franco-Italian behemoth to close the gap with Toyota, VW and Hyundai and overtake GM.

It would also bring together two old European business dynasties, the Peugeot family, who own a major stake in the French carmaker, and the Agnelli family, who control FCA.

Under the terms of a deal, Peugeot chief Carlos Tavares is expected to become CEO and FCA chief John Elkann, a scion of the Agnelli family, would become chairman, according to reports.

Confirmation of the mega-deal talks propelled Peugeot’s shares in Paris up 6% while Fiat Chrysler’s shares traded up 11% in Milan.

Professor David Bailey, a car expert from Birmingham Business School, said: “Fiat have been looking for partner for some time and they have been lagging behind in R&D.

“As the industry transforms to electric cars, companies have to spend more and Fiat can’t do that alone. Peugeot has a lot of cash and the attraction is it would give them entry into the US.”

Car companies have been getting into bed together to develop new technologies like electric cars and cut costs.

VW and Ford announced a tie-up in July to develop self-driving cars.

FCA was in talks with France’s Renault about a £30 billion merger in July but the deal collapsed.

The tie is likely to be intensely political because the French government owns 12% of Peugeot.

The Italian government will be keen to see the merger result in more jobs. That could put at risk Peugeot’s Vauxhall plant at Ellesmere Port, which employs 1100, said Bailey.

FCA has factories sitting idle in Europe leading to possible political pressure to boost jobs, which could mean Ellesmere Port is sacrificed.

Peugeot this summer threatened to move production of Vauxhall Astras to southern Europe in the event of no-deal Brexit.

FCA is the result of a 2014 merger between Italy’s Fiat and American giant Chrysler.