because being older "is better"

The fourth global car group is born in a sector where Marchionne more than 10 years ago claimed the need for consolidation

Former FCA number one, Sergio Marchionne, had predicted that there would be only six automotive groups left in the world, each with "shoulders" wide enough to overcome challenges and market changes unscathed. Today the groups are not yet six, but the industry seems to be heading in that direction.

Some manufacturers join forces to achieve specific goals, as did Volkswagen and Ford but also many others that did not arrive at real mergers or stock exchanges, as FCA and PSA will do. In both cases the word behind the operations is: synergy. Of Greek origin, it means cooperating, collaborating and in the auto sector there are many examples of cooperation between companies.

The largest car groups in the world

Synergy, the key word

Alliances with specific purposes are certainly effective and less difficult to manage than one real fusion, which presents greater complexity of realization, but has a decidedly wider range. In this case the synergies they can relate to costs and geographical diversification, but also regulatory diversification.

Joining forces and increasing size means optimizing the use of the plants, with what it involves in terms of cost decrease per product unit: rationalize the platforms, obtain advantages in the procurement of raw materials, reduce personnel costs and optimize research and development costs. Added to this is the fact that the entire sales and post-sales structure at a global level is also rationalized, with other positive impacts on costs.

Geography is also important for the car

Then there is the geographical diversification: being present in most parts of the world mitigates the negative effects of the slowdown that can occur in one part of the globe over others. But, today more than ever, diversification is important also because the regulatory constraints are different depending on the part of the world that we look at and a global and large producer can face them better. In Europe, the new limits on emissions imposed by law force OEMs to invest heavily in electricity, which, at least in the short term, has huge impacts on costs.

In the USA, if the Trump line passes, car manufacturers will be able to stay more relaxed because the provisions launched in 2012 that required an overall average efficiency for each home's fleet of 46.7 miles per gallon by 2025 would be positioned around the 37 miles per gallon in 2026. This means, for example, that producers will be able to finance the necessary investments in Europe with the savings they will get in the United States.

The Tavares recipe

From a first analysis, the synergies that could be realized from the merger between FCA and PSA are around 3.7 billion euros. Of course synergies have a "price" and require important plans to be implemented, but Tavares seems to be an expert on the subject and what he has done with Opel (also in terms of negotiation capacity with unions and the government) is an excellent business card .

In short, on paper it seems that being bigger is better, also because the size could protect from other problems and other sectors could bring precious examples.

"Too big to fail"

The banking crisis of 2008 brought to the fore an expression that has now become common use: "Too big to fail"- too big to fail. We were referring to those banks and financial institutions so large and relevant within their respective economies that they could not be left to fail because otherwise a deep market crisis would have opened up.

I wonder if one day it will come to this even in the auto sector. It is actually a deja vu why we have already arrived: GM in America has been saved by the Government, France's participation in Renault and PSA goes in the same direction and Volkswagen is a company of national importance in Germany. Too big to fail also applies to cars.

Photogallery: FCA-PSA merger