LONDON (Reuters Breakingviews) - Fiat Chrysler boss Sergio Marchionne has for years advocated consolidation in the car industry. A tie-up between Peugeot and Opel would prove his point but hurt his company.
If the Opel deal happens, Volkswagen, Peugeot and Renault-Nissan would control 54 percent of the European market. Fiat has a measly 6.6 percent share. Worse still, many of its plants on the continent are located in Italy, which has high labour costs and tight employment laws. Even in a good year like 2016, when the overall European market grew by nearly 7 percent, the automaker's regional operating margin was 2.5 percent. Neither Germany's high-margin premium brands Daimler and BMW nor Toyota - which together have a 17 percent market share - are likely to want to hook up with such an unattractive rival.
That's a headache for Fiat, which is under pressure to ramp up costly investment in cleaner cars. The company has the worst CO2 emissions footprint of any volume carmaker on the German market, according to the Center of Automotive Management, a German think-tank. Without drastic steps, Fiat risks missing Europe's legally binding 2021 targets and may face fines. And if U.S. President Donald Trump relaxes American emission rules, the automaker would end up developing the costly technology only for the relatively small number of vehicles sold in Europe. Bad news for a company which already has net industrial debt of 4.6 billion euros.
The Opel deal would also make Marchionne's vision of merging Fiat Chrysler with General Motors - an idea previously rejected by the courted rival - even harder to achieve. After hiving off the perennially loss-making European operations, GM boss Mary Barra will have little appetite for another underperforming business in the same region. Even if she did, Marchionne has a weaker hand since getting rid of loss-making Opel will lift GM's operating margins and free around $1 billion of capital expenditure per year. As others prove fleeter at turning his visions into reality, the Fiat boss could find his options dwindling.