The world’s 4th largest car company by volume has been created today, following a 50/50 merger agreement being signed by Fiat Chrysler Automobiles (FCA) and Groupe PSA.

Carlos Tavares, chairman of the Managing Board of Groupe PSA and Mike Manley, chief executive officer of FCA

The companies said the merger will strengthen the approach to the new era of sustainable mobility, where economies of scale are an essential ingredient in making this move both possible and profitable.

The merger will also see the formation of the 3rd largest automotive OEM by revenue. Based on 2018 figures, the combined company will have annual unit sales of 8.7 million vehicles, with revenues of nearly €170bn (£141bn), recurring operating profit of over €11bn (£9.1bn) and an operating profit margin of 6.6%.

The combined company says its strength will come from FCA’s popularity in North America where its American brands fare well, including Jeep, Dodge, Chrysler and Ram Trucks – a region Peugeot famously pulled out of in 1991 – while Group PSA’s European successes will be capitalised upon. The new Group will have much greater geographic balance with 46% of revenues derived from Europe and 43% from North America.

The major brands included in the merger are Fiat, Dodge, Chrysler, Jeep, and Alfa Romeo from FCA, while Groupe PSA includes Peugeot, Citroën, DS and Vauxhall/Opel. The merger additionally includes commercial vehicles.

Vehicle platforms, engine families and new technologies will be shared between the brands, enabling the business to enhance its purchasing performance. More than two-thirds of run rate volumes will be concentrated on 2 platforms, with approximately 3 million cars per year on each of the small platform and the compact/mid-size platform, the company said.

These technology, product and platform-related savings are expected to account for approximately 40% of the total €3.7bn (£3bn) in annual run-rate synergies, while purchasing – benefiting principally from scale and best price alignment – will represent a further estimated 40% of the synergies. Other areas, including marketing, IT, G&A and logistics, will account for the remaining 20%. It is projected that the estimated synergies will be net cash flow positive from year 1 and that approximately 80% of the synergies will be achieved by year 4. The total one-time cost of achieving the synergies is estimated at €2.8bn (£2.33bn).

Synergy estimates are not based on any plant closures resulting from the transaction, the combined company said, although there were no further comments on possible job losses as the merger will undoubtedly include a doubling up of resources in various areas across the business.

Carlos Tavares will be chief executive officer for an initial term of five years and will also be a member of the Board, which will be formed of five persons nominated by FCA and a further five by Groupe PSA.

The new group’s Dutch-domiciled parent company will be listed on Euronext (Paris), the Borsa Italiana (Milan) and the New York Stock Exchange and will benefit from its strong presence in France, Italy and the US.

Completion of the proposed combination is expected to take place in 12-15 months, subject to customary closing conditions.

Carlos Tavares, chairman of the Managing Board of Groupe PSA, said: “Our merger is a huge opportunity to take a stronger position in the auto industry as we seek to master the transition to a world of clean, safe and sustainable mobility and to provide our customers with world-class products, technology and services. I have every confidence that with their immense talent and their collaborative mindset, our teams will succeed in delivering maximized performance with vigor and enthusiasm.”

Mike Manley, chief executive officer of FCA, added: “This is a union of two companies with incredible brands and a skilled and dedicated workforce. Both have faced the toughest of times and have emerged as agile, smart, formidable competitors. Our people share a common trait – they see challenges as opportunities to be embraced and the path to making us better at what we do.”