WASHINGTON/TURIN (BBN) (Update on  August 7, 2020 to add interview with US Senator Gary Peters (D-Michigan) on whether he supports blocking FCA-PSA merger on CFIUS grounds) — One of the great hurdles facing Groupe PSA [EPA:UG] takeover of Fiat Chrysler (NYSE:FCAU)  is the image in American minds of cigar chewing TV detective Lt. Columbo and his less than reliable 1959 Peugeot 403 Cabriolet.

[Fiat Chrysler Automobile Chairman John Elkann speaks with Capitol Intelligence/BBN using CI Glass at Milan’s Malpensa airport. June 3, 2014]

In fact, Columbo’s Peugeot 403 is the only image of the French car maker in American minds and does little for PSA CEO boss Carlos Tavares to win US government regulatory approval for the USD 50 bn merger to create the fourth largest automotive group behind Japan’s Toyota.

The lack of a US footprint for Peugeot and the entry of Group PSA’s state-owned Chinese stakeholder  — Mao Zedong-founded DongFeng Motors – means the merger will be automatically subject to a vigorous review by the US government’s purposely opaque Committee on Foreign Investment in the United States (CFIUS).

White House Trade Adviser Peter Navarro is now putting the issue of blocking the FCA-PSA merger for CFIUS grounds directly to President Trump and cabinet following concerns of Chinese influence in PSA raised by the president’s son, Donald Trump, Jr, a source close to Don, Jr told Capitol Intelligence.

While Tavares financial and legal advisers Messier Maris & Associés and Bredin Prat state that DongFeng Motors stake in the merged entity will be lowered to circa 5 pct (2.5 pct post-merger) from its present stake of 12.2 pct (with voting rights of 19.2) — any Chinese shareholding in a US automotive group such as Jeep-Chrysler will generate strong opposition not only in the Trump administration but also from Michigan democratic senators Debbie Stabenow and Gary Peters.

Notwithstanding growing oppostion to the FCA-PSA merger in the United States, US Senator Gary Peters (D-Michigan) remained generally non-commital when asked by Capitol Intelligence whether he will seek to block the merger on CFIUS grounds.

[US Senator Gary Peters (D-Michigan) speaks to Capitol Intelligence/BBN using CI Glass on White House blocking proposed merger of Fiat Chrysler and Peugeot on CFIUS grounds at US Senate on August 6, 2020]

However, Peters may not be able to remain the sidelines as he faces a strong Republican opponent in November in the form of African-American combat veteran and business entrepreneur, John James.

Fiat Chrysler lobbyists in Washington DC told Capitol Intelligence that they believe they have support from the Michigan Congressional delegation for the merger.

In fact, key Maryland democrat C.A. Dutch Ruppersberger told Capitol Intelligence that he would recommend opposing the FCA-PSA deal on CFIUS grounds to protect US workers as hinted Indianapolis-based Congressional Black Caucus leader US. Rep. Andre Carson (D-Ind).  Both Rupperberger and Carson have influence over CFIUS as the National Security Agency in Fort Meade, MD is located in Ruppersberger’s congessional district while Andre Carson sits on the House Permanent Select Committiee on Intelligence (HPSCI).

CFIUS – an US interagency committee chaired by US Treasury Secretary Steven Mnuchin along with representatives of the Central Intelligence Agency (CIA), Homeland Security, US Commerce Department, Department of Defense (DOD), US Attorney General (DOJ), Director of National Intelligence, US Trade Representative – is uniquely malleable to White House and Congressional pressure.

[US Congressman Andre Carson (D-Ind.), U.S. Rep. Ed Perlmutter (D-Co.) and Andy Levin (D-Min speaks to Capitol Intelligence/BBN using CI Glass on President Donald Trump blocking proposed merger between Fiat Chrysler Auotmobiles and Peugeot (PSA Group) by the Committee on Strategic Investment in the United States (CFIUS) following vote to approve USD 484 bn supplement stimulus package at the US House of Representatives on April 23, 2020]

“All it takes is one powerful Congressman or Senator to voice strong opposition to any deal and the deal is dead,” one CFIUS lawyer in Washington, DC said. “The agencies all know who approves their budgets so they do not bite the hands that feed them.”

For example, CFIUS under President George W. Bush blocked the UAE’s port operator, Dubai Ports World, from acquiring the US operators of New York and New Jersey ports for national security concerns.

The proposed Groupe PSA-FCA merger comes after failed merger talks with Groupe Renault [EPA:RNO].  The French government of President Emmanuel Macron pulled the plug on the Renault-FCA merger following vocal and stringent hostility of the tie-up by Renault’s industrial partner, Japan’s Nissan. 

The PSA-FCA merger is already facing strong opposition by General Motors (NYSE: GM) CEO Marry Barra that has already ordered her general counsel to file a lawsuit against FCA for allegedly bribing United Autoworkers of America (UAW) officials for favorable terms in collective bargaining agreements.

[General Motors Chief Executive Officer Mary T. Barra filmed Capitol Intelligence/BBN using CI Glass after interview by The Carlyle Group co-founder and co-CEO David Rubenstein at The Economic Club of Washington, DC. February 28, 2017]

Barra, who had to beat-off unwanted merger approaches by late FCA CEO Sergio Marchionne, may be more concerned that their could be transfer of GM technology and intellectual property from PSA to the merged PSA-FCA group after it sold its loss making European automotive division Opel to PSA in November 2017.

While Peugeot ownership of Opel posed little threat to GM in the United States, Opel controlled by the PSA-FCA merger could open the door of GM technology being used in US and Canadian made cars, industry sources said.

Even ignoring US opposition to the PSA-FCA merger, there is little industrial logic to merging two European automotive groups without significant downsizing of industrial output and labor costs.

As with the failed FCA/Renault-Nissan merger, Fiat Chrysler Chairman John Elkann and Group PSA Executive Chairman Carlos Tavares promise that there will be no plants closures in Europe following the merger scheduled to close late 2020 or early 2021.

Sergio Marchionne, the dynamic executive who saved both Turin’s Fiat Group and Detroit’s Chrysler from liquidation, always argued that European automotive groups cannot continue to survive with the current levels of overcapacity and inflexible European labor markets.

The young Elkann, who became the heir to the Fiat dynasty following the death of his great-uncle Umberto Agnelli, openly talked about his desire to transfer Fiat Chrysler to a group controlled by a family rather than a faceless public company during a start-up conference last June with Spotify CEO Daniel Ek.

[Fiat Chrysler Chairman John Elkann filmed by Capitol Intelligence/BBN using CI Glass on family-controlled businesses at Italian Tech Week with Spotify CEO Daniel Ek in Turin, Italy. June 28, 2019]

However, an industrial merger between Hyundai and Fiat Chrysler  poses significantly fewer manufacturing plant and product overlaps both in the United States and Europe and provides FCA with the electric vehicle line-up its needs to remain competitive.

The US-South Korean Free Trade Agreement (KORUS FTA) — on top of closer political-military ties between the United States and South Korea over North Korea’s nuclear proliferation — would make a Hyundai-FCA merger more palatable to the Trump administration and Michigan senators Stabenow and Peters.

The young Elkann may very well ally himself with the young Hyundai heir, Chung Eui Sun, who is expected to takeover the entire Hyundai group from his ailing father, Chung Mong-koo, sometime in 2020.

By PK Semler in Washington, DC and Turin, Italy

For more information please call +1-202-549-3399 or email pks@capitolintelgroup.com

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