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Fiat Chrysler is in merger talks with Peugeot owner

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Fiat Chrysler is once again looking to get hitched.

The Italian-American automaker is in talks with French automaker PSA Group, the owner of Peugeot and Citroen cars, over a potential combination.

The carmakers confirmed in statements Wednesday that they are taking part in “ongoing discussions” over a potential deal. The talks were first reported by the Wall Street Journal.

A deal would create a $50 billion company, although the Journal reported that talks are fluid and there is no guarantee that an agreement will be reached.

Investors like the idea. Fiat Chrysler shares jumped 9% in early trading in Milan, while PSA Group’s stock shot up nearly 6% in Paris.

Global automakers are facing a period of declining sales, because of a slowdown in China, the largest market for new car sales. Chinese sales dropped about 11% in the most recent period, because of a weakening economy exacerbated by trade tensions with the United States.

Automakers are also facing pressure to develop expensive electric- and self-driving vehicles, a research and development effort that will cost billions of dollars but may not produce profits for years. Fiat Chrysler is trailing many of its competitors in those R&D efforts.

Fiat Chrysler was created out of a cross-border merger. Fiat started its purchase of Chrysler out of bankruptcy 10 years ago, a deal that was completed five years later. But the combined automaker is significantly smaller than many of its rivals, putting it at a disadvantage in purchasing muscle as well as spreading out the cost of research and development over a larger number of vehicles. It has been looking for another deal to give it the heft it needs to be competitive.

Sergio Marchionne, the late CEO who brought the two companies together, was very public about his desire for a deal with General Motors, although he was rebuffed. He also talked publicly about his interest in a combination with a tech company looking at getting into autos, such as Google or Apple.

In May, Fiat Chrysler made a merger proposal to another French automaker, Renault, in a deal that by some measures would have created an automaker larger than GM. But it quickly withdrew the offer, saying that “it has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully.”

The French government owns 15% of Renault and is its largest shareholder; it also owns 12.2% of PSA. France has said it would approve the deal only if there were protections for French jobs and factories.

PSA has been involved in mergers as a way of bulking up as well. In 2017 it agreed to pay $2.3 billion to buy GM’s European business, adding the Opel and Vauxhall brands as GM exited the continent. GM lost about $22.4 billion in Europe over the 17 years before the deal, but Opel and Vauxhall are now profitable for PSA.

Fiat Chrysler, which is due to report third quarter results on Thursday, is likewise profitable. It recently agreed to pay a $40 million fine to the US Securities and Exchange Commission for deceiving investors by lying about its US sales.

— Chris Liakos contributed to this report

Article Topic Follows: Biz/Tech

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