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More Cash Needed Before World' s Fourth-Largest Automaker Can Be Born

Apr. 08, 2020 6:35 PM ET by Jay Traugott Industry News / 2 Comments The FCA and PSA merger hinges on massive injection of cash. Late last month we reported that Fiat Chrysler Automobiles and France's PSA Peugeot Citroen still fully intend to proceed with their 50-50 merger and become the world's fourth-largest automaker in the process, despite the impact of the coronavirus pandemic. Both automakers have taken significant financial hits since the outbreak. Currently, FCA's shares are down by 45 percent while PSA's have toppled by 32 percent. Sales are way down and their respective factories remain closed until further notice. Basically, the effects of Covid-19 have altered the original terms of the merger, which would have seen FCA pay out about $6.1 billion to shareholders while PSA would have distributed its 46 percent stake in Faurecia, a French automotive supplier. The economic downturn has now made that initial plan more difficult. Both companies have been affected differently by coronavirus resulting in an uneven playing field. FCA FCA FCA Reuters reports that while both sides still intend to continue with the merger, they have now postponed their shareholder meetings in order for each to find ways to increase their cash reserves. Cash is key before the merger is finalized. But with sales drying up, getting that much-needed cash is forcing both companies to seek assistance from banks. FCA is seeking debt guarantees approved by the Italian government earlier this week that would offer liquidity and bank loans worth over 400 billion euros. This money has been earmarked specifically for companies suffering from the market effects of Covid-19, and FCA is eager to be included. FCA already secured a 3.5 billion euro credit line in late March, but more liquidity appears to be necessary. PSA PSA PSA As for PSA's plan to raise cash, it doesn't appear it'll turn to the French government for funding but will rather secure new credit lines worth roughly 3 billion euros. In all likelihood, this merger will still proceed but not before several things happen first, raising cash among them. PSA is anxious to have a presence in the North American market while FCA needs greater access to electric vehicle technology and small-car platforms. The upcoming Jeep Wrangler hybrid won't be enough to meet government CAFE standards. We'll probably have a better understanding of the merger's status sometime this summer. FCA FCA FCA FCA FCA Source Credits: Reuters

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