The news of the impending merger of Groupe PSA and FCA seems to have been greeted by the car industry with plenty of optimism and enthusiasm, however, this isn't a case of everyone's a winner.
Of course, high ranking executives and those with large shareholdings are likely to do very well but wider ‘stakeholders’ should be concerned.
Those who will cash in on the merger always talk up the positives of the move with statements like ‘lowering costs’, ‘increasing efficiency’, and my personal favourite ‘fostering innovation’. It’s portrayed as all sunshine and smiles without any downside.
We call bollocks! There are winners and losers in every deal, this merger will be no different so let’s have a crack at presenting the arguments against large scale mergers.
On the surface, mergers are a great thing if it protects jobs and delivers better products and services to customers. We have our doubts merging Groupe PSA and FCA will do either.
Competition is supposed to be the driver of capitalism. Competition is what leads to innovation. When these companies merge, it will reduce competition. Can anyone offer a legitimate example of any industry improving with less competition?
We have already seen examples of the homogenisation of the industry through badge engineering. This merger will put Fiat, Alfa Romeo, Lancia, Maserati, Chrysler, Jeep, Dodge, Ram, Peugeot, Citroen, DS, Opel and Vauxhall under one umbrella. How many of these marques will survive the pursuit of greater efficiency?
It’s impossible for each brand to maintain a unique product as part of a large stable. Just look at Maserati, a brand that allegedly has benefitted from being part of the merger between Fiat and Chrysler. The brand has widened its portfolio, lowered costs thanks to borrowing from the communal parts bin, and is more accessible but its cars are no better.
Seeing how many cars can be built on the same platform is now something of an art form for automotive suits. The Volkswagen group have this process down to a fine science.
Mergers of this size make it harder for smaller brands like Mazda which effectively stifles innovation. Mergers can deliver economies of scale that put pressure on the smaller marques which leave them open to a takeover. It’s a vicious cycle.
And then there are the employees, improving efficiency is generally code for plant closures. According to the merger statement, no plant closures are predicted. We will call bollocks on that claim as well. Improved efficiency and greater levels of automation mean larger facilities can consolidate production. Smaller factories in high wage locations will be under threat almost immediately.
Even if the merger struggles to improve productivity, corporate heavies are obsessed with lowering overheads at any cost. Job losses should be expected as badge engineering becomes the norm.
Looking at the flip side, reducing operational costs is a perfectly legitimate goal, even more so if some of the savings translate to better conditions for staff and more value for customers. Though more often than not it’s those with a corner office that enjoy the dividends via larger bonuses.
While this merger may sound great, perhaps this is the first actual case of a large corporate merger where everyone's a winner. We can't seem to get away from the old adage if it’s too good to be true, it probably is.
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