The boards of Fiat Chrysler Automobiles and Peugeot maker PSA Group were meeting separately on Tuesday to discuss finalizing an initial agreement for a $50 billion merger to create the world's number four automaker, people familiar with the matter told Reuters.
A person close to FCA said the two companies could announce the signing of a binding memorandum early on Wednesday, followed by a conference call to explain further details later in the day.
Ahead of the meetings, entities representing the Peugeot family, Etablissements Peugeot Freres and FFP, unanimously approved a proposed memorandum of understanding for the planned merger, a person familiar with the situation said.
The French state, which owns about 12 percent of PSA and has board representation, supports a binding memorandum of understanding that reflects minor changes to an accord unveiled by the two automakers on Oct. 31, Bloomberg reported on Monday. The combination "makes sense in order to build a new champion with global scale to take on the challenges of sustainable mobility," a French finance ministry official said in a statement.
FCA and PSA announced their plan six weeks ago to create an automotive powerhouse that would challenge Volkswagen Group in Europe, while maintaining Chrysler's Detroit 3 presence in the U.S.
The new company would be based in the Netherlands and headed by PSA CEO Carlos Tavares. Fiat Chrysler Chairman John Elkann would keep his role as chairman.
The deal will turn two midsize automakers into a global giant, with sales of more than 8 million vehicles a year and a stable of brands including PSA's Peugeot and Citroen and Fiat Chrysler’s Jeep, Alfa Romeo and Ram.
The automakers are responding to growing pressure on the industry to pool resources for product development, manufacturing and purchasing in the face of trade tensions, a global sales slowdown and an expensive shift toward electric and self-driving technology.
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After Ford Motor Co. and General Motors ended production of compact cars, many former car owners continued to purchase sedans instead of switching to crossovers and SUVs, according to an Edmunds analysis.
So far in 2019, 23 percent of former Chevy Cruze owners and 31 percent of former Ford Focus owners bought a car from a competitor, the online car sales website said in a report Wednesday.
"Ford and GM made a strategic decision to prioritize profit at the expense of market share," Jessica Caldwell, Edmunds' executive director of insights, said in a statement. "While this may set them up better in the long run so they have the cash they need to fund electrification and autonomy, there's no question that decision is giving their competitors an edge now."
Former Focus owners' brand loyalty declined over the last three years from 40 percent in 2016 to 33 percent through September 2019, the report said. Former Cruze owners' loyalty declined from 57 percent in 2016 to 45 percent in 2019.
The study showed 21 percent of Focus and 22 percent of Cruze trade-ins go toward the purchase of a compact car, many of those cars being Honda Civics or Toyota Corollas.
"The number of Focus and Cruze owners trading their vehicles in and buying a small Jeep [Compass or Renegade], Hyundai Kona or Elantra, Kia Forte or Subaru Crosstrek have all risen in the last three years," the study said.
In an emailed statement to Automotive News, GM spokesman Jim Cain said: “Chevrolet trucks and crossovers are offsetting lower car sales. The proof is in registrations, and registrations don’t lie. Dig deeper and you’ll see that key competitors -- Ford, Nissan, Toyota, Jeep and Chrysler, among others -- are losing significant chunks of retail market share. We’re doing fine.”
The study said 21 percent of Cruze owners and 18 percent of Focus owners traded in their cars for the corresponding brand's crossovers or SUVs in 2019. Edmunds analysts said the cost increase of a small crossover or SUV — between $4,000 and $8,000 more than a small car — puts pressure on younger and "price-sensitive" buyers.
"The catch is, if Ford and GM don't have affordable options for shoppers who are buying their first or second new car, it could be much harder to win them over later," Caldwell said in the statement. "Catching consumers early and keeping them in the family has been a basic tenet of automotive brand strategy for decades.
"It feels like we're in the midst of a transformative time for the industry where automakers are being forced to rethink everything," she said.