THE phone line between the brains trusts at the Renault-Nissan-Mitsubishi Alliance and Fiat Chrysler Automobiles ending their merger deal earlier this year would have barely gone cold before PSA Group chief Carlos Tavares would have been on the phone to FCA headquarters.

The proposed merger between the Alliance and FCA in May this year had just fallen through under the insistence of the French government, a key Renault shareholder.

This combined Alliance-FCA monster would have captured 23 brands worldwide and made a lot of sense for all involved but the politics was going to be impossible. And so it proved.

But to another Frenchman, Carlos Tavares, CEO at PSA Group, such a tie-up was irresistible.

PSA Group owns the Peugeot, Citroen, DS (Citroen’s premium brand), Vauxhall and Opel brands.

PSA Group sells just short of four million units a year globally.

But Mr Tavares, who became CEO of PSA Group in 2014 after senior roles at Renault-Nissan, has high ambitions to grow the company’s global presence and he wants to increase group sales outside Europe by 50 per cent.

The key to that goal is clearly a presence in the United States and Canada, a market roughly the size of Europe, which Peugeot was forced to abandon in 1991 due to poor sales and very poor car quality.

Mr Tavares has made his ambitions for North America very clear by setting a date of 2026 for the return. More recently he set another closer date of 2023.

What is crucial to any merger with FCA is that it would fast track PSA’s access to a ready-made dealer network in both the United States and Canada.

The advantage of this in terms of cost savings and timelines cannot be underestimated.

The US, especially, is a very big place with tens of thousands of towns and cities, all with dealerships. The logistics of attracting dealers, getting them to agree to business terms and then investing and building premises are eye watering.

While a lot of that work still has to be done, having an entree to the FCA network would be a massive shortcut for the French company to a wide range of successful, well-established dealers.

The merged group would have 17 brands.

PSA Group brands are:

Peugeot: Provides the baseload power of the group

Citroen: Still quirky but loved by owners

DS: Citroen’s premium brand

Vauxhall: The Poms still love them

Opel: Kicking goals under PSA control

FCA currently produces vehicles under 12 brands:

Ferrari: The jewel in the crown

Maserati: Italian heartthrob on the march

Abarth: Fiat’s performance brand

Fiat: The group’s Italian car engine room

Fiat Professional: Fiats for businesses

Lancia: Blast from the past

Alfa Romeo: Steadily rebuilding on past glory

Chrysler and Dodge: 20th century middle America

Ram Trucks: US cash cow

Jeep: Iconic

SRT: US performance group

At this point, PSA Group sits ninth on the global sales ladder (with 3.9 million sales) behind FCA in eighth place (with 4.9 million units) so the combined company will have global sales of just short of nine million.

This would put PSA-FCA in fourth place behind the Renault-Nissan-Mitsubishi Alliance which achieved 10.6 million global sales in 2018.

In 2018, FCA sold more than 2.5 million cars in North America, 1.3 million units in Europe, 561,000 units in South America and 221,000 in Asia-Pacific.

In 2018, PSA sold 3.1 million units in Europe, 175,000 units in Latin America, 291,000 in the Middle East, 15,000 in Eurasia, 26,000 in India-Pacific and 262,000 in China and South-East Asia.

PSA Group sales globally rose by nearly seven per cent in 2018. It was the fifth year in a row of increased sales.

FCA is also travelling well globally but especially in the US. In 2018, FCA US had its highest sales in 17 years with Jeep, Ram and the Dodge Challenger selling in record numbers. FCA US increased sales by nine per cent in 2018 to 2,235,204 vehicles sold. Jeep brand sales increased by 17 per cent last year to a record 973,227, while Ram sales were up seven per cent to a new record of 597,368 vehicles.

Both companies each employ close to 200,000 people worldwide.

FCA revenue for 2018 was $A180 billion with net income of $A5.8 billion while PSA Group revenue for 2018 was $A120 billion with net income of $A5.1 billion.

Of course, these mergers of large auto companies have a history of going south.

Daimler and Chrysler ended in tears as did Ford’s massive brand acquisition of luxury brands under the Auto Collection initiative. BMW and Rover ended up hating each other as did GM and Fiat in the 1990s. In 2012 PSA and GM got together to get billions in economies with common platforms (the usual story) but it all fell apart a year or so later.

And Peugeot has supped at the Chrysler table before.

In 1978, Peugeot bought Chrysler’s European brands including the British Rootes brand (Hillman, Humber, etc) and Talbot (Sunbeam) and the French brand Simca.

It proved a huge challenge to swallow and it set Peugeot profits into reverse for the next five years. But it gave Peugeot a manufacturing base for Peugeots in the UK for decades and even as late as the late 1990s Peugeot was a major player in the British market with more than 10 per cent share.

On the other side of the Atlantic we have seen Fiat and Alfa Romeo return to North America.

Alfa pulled out in 1995 with sales of just 8000 units and Fiat pulled out in 1983.

Alfa sales are about 23,000 a year in the US, which has made the move worthwhile but the Americans have not really taken to the Fiat 500, which has just been pulled from the market. In the past five years, Fiat sales in the US have fallen from 46,000 to 15,000 units.

So a lot would be riding on the shoulders of Mr Tavares.

Yet he has a very impressive track record. The acquisition of the Opel and Vauxhall operations has proved to be a masterstroke.

General Motors, for 10 years, poured a billion dollars a year into Opel and Vauxhall and could not get it to return profits no matter how hard they tried. Yet, within a year, under the PSA Group, Opel was making money and returned a profit of more than $A1 billion.

In their first year, PSA Group got back one third of what they paid for it.

Footnote: The Dongfeng Motor Corp, a Chinese state-owned enterprise, holds 12.2 per cent of PSA Group but is reported to be looking at cashing in it shares.

Dongfeng took a position in PSA back in 2014 when PSA was losing money. The French government, which had also pitched in money and also became a shareholder, arranged for Dongfeng to help bail out the French car-maker. Both parties took 13 per cent of PSA.

If the Chinese car-maker now sells, it will do rather well for itself.

In the intervening five years, Dongfeng’s share of PSA stock has risen from $A1.3 billion to $A3.56 billion. Nice work.

COMMENT by John Mellor