Newsflash: Volkswagen gaat elektrische instapper in Bratislava bouwen

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+++ AUDI will ramp up engine output to 2.25 million units next year at its Hungarian factory, up from 1.95 million produced in 2018, Hungarian foreign minister Peter Szijjarto said. “They plan to manufacture 2.25 million engines next year, and so far 2 million has been the annual record”, Szijjarto told, when asked about a report that Audi planned to cut jobs at its Hungarian plant. +++ 

+++ Strong sales of FERRARI ’s Portofino and 812 Superfast models helped the Italian luxury carmaker raise its 2019 forecasts, powering its shares to a record high. The ‘Cavallino Rampante’, or ‘Prancing Horse’, known for its racing pedigree and roaring engines, is pursuing an aggressive roll-out of new premium models to sustain its solid growth. Ferrari said its adjusted earnings before interest, tax, depreciation and amortization would be around €1.27 billion for the full year, topping a previous forecast of €1.2 – €1.25 billion. The carmaker also increased its outlook on 2019 revenue to about €3.7 billion, from a previous forecast of more than €3.5 billion, and on its industrial free cashflow. “We expect the stock to rise but (the) focus will be on 2020”, Morgan Stanley analysts said in a note, adding that Ferrari’s results were better than expected from the top line down to earnings per share. Ferrari will present its latest new model in Rome next week, taking the total to 5 in 2019, including the F90 Stradale, its first hybrid car in series-production to be available in more than a very restricted number. In the third quarter output rose 9.4 % year-on-year to 2.474 vehicles, driven by a 9.5 % increase in sales of 8-cylinders models, such as the Portofino, and a 8.9 % rise in higher margin 12-cyilinder models, such as the 812 Superfast. The first deliveries of the Monza SP1 and SP2 had also begun toward the end of September, Ferrari said in a statement. To support Ferrari’s growth and profitability, chief executive Louis Camilleri’s strategy plan from September last year promised to launch 15 new models between 2019 and 2022. In the July-September period, Ferrari’s adjusted profit rose 11 % to €311 million, broadly in line with analyst expectations. Margins on core earnings rose by 70 basis points year on year to 33.9 %, close to Ferrari’s 34 % target for the full-year. +++ 

+++ FIAT CHRYSLER AUTOMOBILES (FCA) has become the latest car making group to express an intent to move away from city cars, with the company’s CEO suggesting this will happen “in the very near future”. The comments were made by Mike Manley during FCA’s third-quarter earnings call. He expressed a desire to move customers into the B segment, where the Fiat Punto used to reside. Manley said: “In the very near future, you will see us refocus on this higher-volume, higher-margin segment, and that will involve a move away from the minicar segment”. A number of brands, such as Ford and Opel, have already exited the A segment (city cars), while the Volkswagen Group is unlikely to replace the Up, Mii and Citigo siblings with a similarly aligned product. The problem is increasing development costs because of tougher European Union emissions limits, which makes profitability in a class expected to be low-budget very difficult, even with FCA being the market leader. It’s likely, then, that a replacement for the Punto is now back on the cards, and this could also provide the basis for a new small Alfa Romeo SUV to replace the Mito. No timeline is given, but the decision could be influenced by FCA’s recent merger with the PSA Group, allowing the Italian brands access to the platform of the new Peugeot 208 and Vauxhall Corsa. Fiat is still understood to be replacing the 500; an electric 500e is due in 2020, alongside a new Giardiniera estate variant. It’s unlikely that the project has been cancelled so close to its public unveiling, so Manley’s comments could be in reference to the cheaper Fiat Panda. That model is the best-selling city car across Europe, with more than 105,000 examples produced in the first half of 2019, despite it being 7 years old. The electric Fiat Centoventi concept unveiled at the Geneva motor show in March was strongly linked to a Panda replacement as soon as 2021, but that plan may already have been altered. +++ 

+++ FORD is readying a hot version of its upcoming Puma crossover which will officially be released towards the end of next year. The car will ride closer to the ground and on larger performance-inspired alloy wheels (shod in low-profile tyres) than the standard car, while a pair of exhaust tailpipes will poke out from the rear bumper, and the tracks will be wider. Expect the ST to follow in line with other recent fast Fords and feature a larger front air dam, deeper bumpers and an extended rear spoiler for a more menacing look. It will also feature a trapezoidal lower grille design, but the same wing-mounted headlight clusters as the standard model. Cabin upgrades for Ford’s ST family are usually fairly subtle; expect the Puma to feature a supportive set of Recaro sports seats and extra badging to single it out from the lesser models in the Puma range. The standard car’s cabin is generously equipped, featuring a 12.3-inch customisable digital instrument panel, Ford’s Sync4 infotainment system complete with 8 inch touchscreen and a 10-speaker Bang & Olufsen surround sound system. The Puma shares its platform with the Fiesta, so any performance version is likely to use the same running gear as the latest Fiesta ST. that means power will be provided by a 1.5-litre turbocharged 3-cylinder petrol engine with 200 hp and 290 Nm. Drive will be sent to the front wheels through a 6-speed manual gearbox, but the Puma’s extra weight relative to is supermini cousin means that it’s likely to slightly lag behind the Fiesta’s 6.5 seconds 0-100 kph time. The power will be kept in check by an uprated braking system that features larger discs at the front. As it stands, the Puma will have very few rivals when it hits showrooms. With a replacement for Nissan’s Juke Nismo RS looking unlikely, there’s no outwardly sporty compact crossovers. However, the Puma ST is likely to face stiff opposition from Hyundai; the Korean firm is readying a high performance version of its Kona that will fall under its N sub-brand. +++ 

+++ Fiat Chrysler Automobiles boss Mike Manley made 3 trips across the Atlantic Ocean recently (1 to Frankfurt, 2 to Paris) with a scrapped merger with Renault still fresh in his memory. On the other end of those excursions, according to a person familiar with the matter, awaited someone he considers a FRIEND : PSA Group boss Carlos Tavares. Although FCA reportedly turned down an offer earlier this year to join forces with PSA, the 2 sides were in talks again and things were getting serious. Manley met with Tavares on these trips as they held conversations on a potential deal that would create the 4th largest automaker in the world. Those travels are close to bearing fruit now that the boards of both companies have given a mandate to their teams to finalize merger discussions and reach a binding memorandum of understanding in the weeks ahead. The roots of their camaraderie can be traced to when they met around 10 years ago. Tavares was at Nissan when they worked together on a project. They’ve also had frequent interactions over the years as members of the European Automobile Manufacturers Association. FCA and PSA have a long-running partnership to build light commercial vans at the Sevel plant in Val di Sangro, Italy, which was inaugurated in 1981. In February, FCA Italy and PSA announced that they had signed a deal to extend the Sevel cooperation agreement to 2023 and increase production capacity. “Both companies know each other very well and the personal rapport is excellent, so we have been able to move quickly to get to this stage”, Manley said last week while discussing FCA’s third-quarter earnings. He added that “exploring this combination is absolutely consistent with everything we have been saying for a long time about the need for smart industry consolidation”. The chemistry between Tavares and Manley could come in handy as the leadership structure of the merged unit comes together. So far, the companies have revealed only that FCA chairman John Elkann would serve as chairman for the new group, while Tavares would be CEO. The PSA development is just the latest in a string of challenges that Manley has had to confront. He was thrust into the CEO role just days before Sergio Marchionne (long an advocate for industry consolidation) died in July 2018. Manley has kept the company steady as it builds for the future. He has reworked his executive team, including bringing in outsiders from Amazon and Nike. He also recruited an industry vet this year, former Infiniti chief Christian Meunier, as his successor in leading Jeep’s global operations. At the mean time, the FCA-PSA merger plan was helped by ties between stakeholder families. Late in May, Elkann was back in Paris. The city had become a frequent destination for the scion of the Italian FCA clan as he worked to get a combination with Renault over the line. But days before announcing the deal, Elkann walked into the apartment in the affluent 16th district of an unusual dinner companion: Robert Peugeot, a descendant of the namesake automaker and Renault arch rival. The 2 men, powerful representatives of their family empires, had known each other for a long time and had forged a friendly relationship. Now that FCA was about to get into bed with the competition, that connection was being put to the test. After all, Carlos Tavares, the CEO of PSA Group, had let it be known that he, too, was on the lookout for an ally. And to many industry experts, FCA and PSA seemed a better match than the French competition, with its complicated Japanese alliance and a strong-willed government as the biggest shareholder. When FCA and Renault announced their merger on May 27, it did not take long for Tavares to pour acid on the plan, calling the transaction “particularly opportunistic” for FCA and a “virtual takeover” of Renault, a view that did not sit well back at FCA in Turin. The pessimism proved prescient. The transaction collapsed only a week later after the French government ratcheted up demands and the complexity of Renault’s strained alliance with Nissan proved insurmountable. Elkann pulled the plug in a make-or-break board meeting. The failure gave Tavares another shot at FCA, and ever the dealmaker, he was not willing to let it slip through his hands a second time. This story recounts how the companies spent months piecing together the transaction announced this week. It’s based on accounts of people close to the negotiations, who spoke on condition of anonymity discussing private meetings. The idea of combining PSA and FCA had been around for years, but talks gained momentum at the start of 2019. In the clubby automotive world, executives routinely rubbed shoulders at industry events like auto shows to discuss scenarios; the French government, for its part, made no secret of the fact that it preferred PSA and FCA merge rather than Renault, and representatives of the Finance Ministry met regularly with Tavares, Elkann and Robert Peugeot to explore that avenue. Tavares has a track record as a shrewd operator in the vein of the late Sergio Marchionne, propagating the need for global alliances that can wring savings from factories and pool resources on expensive developments. He had proven his knack at turnarounds with his purchase of Opel 2 years ago, an asset rich in heritage but hopeless at making money. The Portuguese executive had also explored partners like Jaguar Land Rover, yet while the British brand promised some good technology, it did not offer the transformational splash that Tavares sought for his next big deal. By August, with the Renault deal in shambles, the FCA – PSA push picked up speed. Finance minister Bruno Le Maire worked the phones with both automakers from his vacation in Greece. But a deal proved elusive, with 2 many unresolved issues and strategic differences, and the parties decided they needed more time. Le Maire had made his thoughts known publicly on how he viewed Italian negotiation tactics. Speaking in July about European Union decision-making, the minister proclaimed that the Italian “loves deal-making so much that he continues dealing even when there is already a deal”, an observation that applied to Elkann’s shuttle diplomacy over the months. Tavares opened another channel to Manley. The 2 engineers had known each other for more than a decade and had a good relationship, sending each other text messages frequently. Talks picked up again after the August hiatus. In September, the 2 executives met at the Frankfurt auto show to push along the idea of a full-blown merger. While the Renault plan had collapsed spectacularly in a short space of time, there remained a lingering concern in the Tavares camp that they might come back to try again, something the CEO was determined to avoid. Pressure was also building from within the industry as car sales slumped in big markets like Europe and China. New regulation on tighter emissions was squeezing automakers, increasing the need to find strong partners. And the drive to an electric future was eating into margins as development costs kept rising. By October, the possibility of a combination (code-named Stella) was within reach. The breakthrough came in a 4 hour weekend session in Paris between Tavares and Elkann, when they hashed out final details. The following week, news of a pending deal had begun leaking out, and the 2 sides confirmed their plan to merge shortly thereafter. The deal would complete a turnaround for PSA, which 5 years ago was given a lifeline from Chinese automaker Dongfeng Motor and the French government, with the Peugeot family relinquishing control. Now the clan has an option to increase its stake in the automaker, which traces its roots to the metals industry of the 19th century. The transaction also caps the Agnelli dynasty’s revival over the past 15 years under Elkann and secures the future of an Italian automaker founded in 1899. “The strength of this merger is that it’s a pact between 2 of the most iconic European families”, said Carlo Alberto Carnevale Maffe, a professor at Bocconi University in Milan. “More than a financial deal, it’s a wedding that combines different traditions”. +++ 

+++ GERMANY plans to increase by half the grants available to buyers of electric cars over the 5 years from 2020, the latest in a series of measures to speed the adoption of low-emissions vehicles. Grants for plug-in hybrids will rise from €3,000 to €4,500. For vehicles priced over €40,000 the grants will rise to €5,000. The government wants to have 10 million electric vehicles on the roads by 2030, part of an offensive designed to turn round the German car industry’s perceived laggard status in e-mobility compared to its rivals in the United States and China. The plan came to light on the day that chancellor Angela Merkel gave a speech at Volkswagen’s Zwickau factory, where the German watched the carmaker start mass production of its ID.3 electric car, a vehicle costing around €30,000. “We can now say that Zwickau is a pillar of today’s German auto industry and of its future”, Merkel said at the launch. “Our task as politicians is to create a framework where new technological innovations can take hold”. Merkel said the government would invest €3.5 billion to 2035 in building charging stations for electric cars. Earlier, she had said Germany needed 1 million charging stations by 2030 and urged carmakers and utility companies to play their part in helping to build the necessary infrastructure. As part of an auto industry push, BMW plans to build 4,000 electric car charging stations. In September, at the Frankfurt auto show, Europe’s carmakers warned governments that the EU rules could be disastrous for profits and jobs because mainstream customers were not buying electric vehicles. German carmakers are accelerating plans to launch electric vehicles, under pressure from a European Union mandate to deliver a 37.5 % cut in carbon dioxide emissions between 2021 and 2030, on top of a 40 % cut in emissions between 2007 and 2021. +++ 

+++ Battery electric vehicles (BEVs) and hydrogen-fuelled vehicles should sit alongside one another in the FUTURE to ensure maximum energy efficiency, according to one expert. Hugo Spowers, founder of Riversimple, which hopes to launch its first hydrogen vehicle in 2022, said: “Hydrogen and electricity as 2 parallel vectors gives us maximum energy efficiency. Some demands are met better by BEVs and some by hydrogen. We need both these technologies; we don’t argue over solar or wind turbines winning the energy race”. He explained: “Electricity and hydrogen are very complementary. You can make electricity more efficiently from some sources and hydrogen more efficiently from others. For instance, producing electricity from wind is far more efficient than hydrogen. But when there’s excess wind, you can’t store electricity but you can store hydrogen. On the other hand, hydrogen is made more efficiently from biogas than electricity. There are pros and cons of both. Hydrogen makes more sense for vehicles with longer range or commercial vehicles, while BEVs make more sense for short-range vehicles. The efficiency advantage of having both is compounding”. Helen Lees, electric and connected boss at the PSA Group, added: “Ultimately, our vehicle platforms have been designed for hydrogen in the longer term”. She added that consumer perception of hydrogen cars remains a barrier alongside infrastructure, and that PSA believes hydrogen is much better suited to light commercial vehicles. +++ 

+++ Gerry McGovern doesn’t believe in fairy tales. I’ve arrived in the LAND ROVER design director’s light and spacious Gaydon office desperate to hear the full, emotionally charged saga of how he and his design crew created a new Defender to replace the company’s 1948 icon, and the first comment he can offer is that it all happened “quite a long time ago”. This is true, of course. One well-known fact about modern mass manufacture is that all the really important stuff about market positioning, major dimensions, mechanical layout and styling gets decided anything up to five years before a model hits production. Just the same, as the new Defender goes on sale this month for deliveries next spring, I’m desperate to hear as much sentimental stuff as McGovern can remember, especially about the mystical influence of a secret concept from 2015 called LR1, whose existence was never publicly shared. 62 year-old McGovern affects a tough-guy persona that is both well rehearsed and anchored in reality: his favourite gym pursuit is boxing and he has biceps as thick as other people’s thighs. “People keep asking me if the new Defender is my legacy”, he says with more than a hint of weariness. “The answer’s no. I’m a professional designer and I’m always looking for the next project. As it happens, our next big job is the Range Rover replacement and that’s just about done and dusted”. Luckily, beyond the bravura display of toughness he has been cultivating all his design life (no doubt as a way of prevailing against engineers and bosses who might otherwise seek to limit the flights of his design fancy) McGovern reverts to what he really is: one of the United Kingdom’s great design leaders with a rare and sophisticated eye for beauty in cars, even when they must be tall and boxy. His powerful influence has shaped most Land Rovers and Range Rovers of the past 25 years (this despite a 5-year period working at Lincoln and Mercury in the US), but he doesn’t yearn for the sketchpad the way other design bosses purport to do. “We have a fantastic design team”, he explains. “My job is to edit every detail of what we do. I’ll be in the studio after everyone’s gone home, seeing what works and what doesn’t”. In a relatively junior capacity at the then-Rover Group, McGovern created both the MGF sports car and the original, pioneering Freelander of 1997, a model that single-handedly established a new European class of affordable family 4x4s and then led it for nearly 7 years. The Detroit phase and a series of much-admired Lincoln concepts followed but, frustrated by slow-moving management, McGovern was back at Land Rover by 2004 to lead advanced design on a tacit understanding that he would succeed soon-to-retire Geoff Upex as design director in 2006. “Even back then, the company was talking about Defender replacements”, he says, “but those were mostly facelifts that set out to modernise what we already had”. McGovern recalls inheriting a thick book called the Design Bible, filled with the design cues and DNA elements Land Rover had been using for years, such as the Range Rover’s clamshell bonnet, its 50/50 glass-to-body relationship (“the original Range Rover was like a viewing gallery on wheels”) and the Range Rover’s bonnet castellations. The new design boss felt the real job that needed doing at Land Rover was to decide how all this would be relevant “in a modern context”. Much discussion and brain-strain eventually resulted in the adoption of Land Rover’s current 3-pillar philosophy, the plan to have Defender, Discovery and Range Rover families, and to add models to each one. It’s still a work in progress. The other big event in McGovern’s early career as design director was the launch of the LRX concept, the highly influential model (created by an advanced team headed by today’s Jaguar design director Julian Thomson) that led to the launch of the Evoque in 2011. McGovern’s achievement was his recognition that this was a game-changing design, and his implacable insistence that it should be produced with no watering-down of the core idea. “A few people criticised the poor rear vision”, says McGovern, “and I guess they were right. It wasn’t brilliant. But the rising beltline and falling roof were the absolute keys to the way the Evoque looked. I said if anyone really didn’t like it, they should buy another car”. Few were unhappy enough to take the design director’s advice: whereas marketing traditionalists within the company had predicted sales at 30.000 units a year, the figure exceeded 130.000; an achievement that transformed JLR’s financial fortunes, even if it has struck tough times lately. The ‘new Defender’ proposal everyone remembers is the DC100, which appeared in various colours and bodystyles (short-wheelbase roadster and hardtop) in 2012 and was made available for selected hacks to drive for much-published photographs on a Californian beach. Great debate ensued: the size and modern simplicity appealed to some (me) but the concept’s obvious differences from the traditional ‘Landie’ upset many head-in-sand purists. McGovern rode it without much trouble. “My job was not to think much about the great expectations”, he says, “and I tried to keep them away from the team. If I’d kept going on about it, I think it would have been quite debilitating. The DC100 came about mainly through discussion between me and public affairs”, McGovern recalls. “We needed to get this new Defender idea going. Nobody in the company was even talking about it. And it definitely got the debate running. Some say DC100 influenced the 663 (the new Defender), but that’s really not true. I’d say it showed us how not to do it. The proportions were okay but I felt it was over-styled, and it was trying too hard to be contemporary. It wasn’t rugged enough, either”. Above all, it didn’t have what McGovern calls “lines of consequence”: body lines that uniquely define a model’s shape. Car designs can be simple, he says; in fact, it’s usually desirable. But the best have lines of consequence, and if you examine models from McGovern’s recent period such as the Velar and new Evoque, you see them immediately. The real driver of the new Defender’s shape, size and philosophy was the LR1 concept begun in 2011, says McGovern, which reacted to the criticisms of the DC100 concept that had been created a little earlier. This study was never shown in public, perhaps because the company had become exhausted by the tumult around DC100. “When we did LR1, most people around here got it”, he recalls. “Mind you, that might be because they didn’t want to get into a fight with me”. LR1 was McGovern’s best bet and it reached maturity relatively easily. It learned from DC100 by having lines of consequence that were simple and straight. There was no DC100 “silliness” and it looked rugged. The screen angle, though more raked than the original Defender, looked just right and so did the sheer shape of the car’s rear. The tiny front and rear overhangs helped give an impressive look of toughness. “The big challenge was going to be making the various versions”, says McGovern. (We so far know of 2: the 90 and 110, but there will also be a Defender 130). Can Land Rover maintain the ageless quality of the original Defender, having adopted only a 7 year model cycle in recent years? McGovern believes so: “We’ve already started to change our model philosophy by staying with a well-loved look once we establish it, and allowing changes to be dictated by improving technology, materials or manufacturing techniques rather than the calendar. The new Evoque is a good example of that, and you’ll see us use more of it. What I think differentiates us as a design house is our desire to deliver modernity: reductive design, great proportions, lines of consequence and no silliness. I don’t usually talk about our competition but, when I drive to London on the motorway, I find it hard to tell one model from another. We’re never going to be like that”. Gerry McGovern sees designing fully electric cars as “the next big thing coming at us”, but he’s notably reluctant to predict the demise of Land Rovers with bonnets: “We’re embracing electrification, of course, and the day is coming when cars won’t need engines. But just having a one-box vehicle strikes me as pretty boring. I think what Jaguar have done with the I-Pace (a screen-forward layout) is close to the limit, unless you want your car to look like a bar of soap. “Models like ours need proportions that look right. There will be other stuff to accommodate in that space, after all. But the big point is special products need design elements to differentiate them from the rest. Look at fashion: people say it changes all the time, and some of it does. But take a look at design classics: they don’t. For me, design is what communicates most clearly what your brand stands for. It’s the main differentiator of brand values once the technologies of different brands become comparable. Why would you want to mess around with that?” +++ 

+++ It’s been a day since FCA and PSA announced their MERGER , leaving enough time for markets to react and figure out who the real buyer is. FCA’s shares jumped in value by 10 % following the official announcement, while PSA’s shares dropped by about the same amount, which is the typical buyer’s hit. The 2 car makers went out of their way to make this merger as equal as possible, and that included paying dividends, shedding assets and distributing board seats. FCA shareholders will receive a premium of almost €5 billion, based on share prices before reports of the negotiations and both sides shed assets before combining their remaining equity. After adjusting the differences in market values and the €5.5 billion dividend paid out to FCA’s shareholders, “achieving a 50/50 shareholding suggests PSA is paying a 32 % premium to assume control of FCA”, Jefferies analyst Philippe Houchois said. “PSA shareholders are assuming more market risk”. Last week, PSA had a market value of €22.6 billion. Prior to merging with FCA, the French automaker will give out its €3 billion stake in parts maker Faurecia to its shareholders, leaving around €19.6 billion to be contributed to the new company. FCA’s shareholders will contribute at least €5 billion less; The Italian-American car maker had a market value of €20 billion, but before the merge it’ll have to hand out around €5.75 billion that includes both the aforementioned dividend and its robotics arm Comau to its shareholders. Out of the €5.75 billion before the deal closes, FCA’s Agnelli family will gain almost $1 billion in value through their holding company Exor, Fiat Chrysler’s biggest shareholder. FCA’s chairman and Agnelli family scion John Elkann will still retain a lot of power, as he’ll be chairman of the new merged company and Exor will be its largest shareholder with around a 14 % stake. DBRS Morningstar said it has placed ratings on FCA and PSA under review with positive implications following the announcement last week of a merger of the 2 groups. DBRS Morningstar has BBB (low) ratings on both FCA and PSA, the statement added. If the 50-50 share merger is completed, the combined FCA / PSA entity would benefit from product and geographic diversification on top of synergies and efficiencies, DBRS added. PSA’s and FCA’s plan to combine into the world’s 4th largest automaker will face a laundry list of challenges, with the bleak outlook for Europe near the top. The 2 automakers mapped out an accord for a 50-50 Netherlands-based holding company to be headed by PSA boss Carlos Tavares. They said the deal would lead to €3.7 billion in synergies without factory closures. The combination would create a global powerhouse and leave Tavares, who has successfully turned around PSA and the loss-making Opel brand it acquired, to figure out how to integrate FCA’s struggling operations in Europe. The Italian-American automaker published earnings that showed a widening loss in the region. “FCA is in a very bad situation” in Europe, said Jean-Pierre Coriniou, a partner at SIA consultancy in Paris. Only the American brands Ram and Jeep are attractive, and the FCA plant utilization rate is around 50 % in some parts of Italy, he said. The contrast with PSA is striking. Sales of FCA branded cars including Fiat, Jeep, Lancia, Chrysler, Alfa Romeo and Maserati, fell 10 % in Europe during the first nine months of 2019, based on data from the European Automobile Manufacturers Association. At PSA, the second-largest in sales in the region, they were little changed, against an industry decline of 1.6 %. The plan for their tie-up is unfolding at an exacting time for global automakers who are having to grapple with a deepening industry slump and a wall of investment required for new technologies. The deal would bring together the billionaire Agnelli clan in Italy and the Peugeot family of France. Yet their deep national roots, along with the French government’s 12 % stake in PSA, will make slimming down all the more difficult. France is one of the biggest shareholders of PSA, and while the government has signaled support for a deal, it has also warned it would scrutinize the jobs impact and governance structure of the new company. Italian Industry Minister Stefano Patuanelli also said the government would make sure the deal and expected cost cuts don’t affect jobs in Italy. The combination makes economic and strategic sense, but “there are significant hurdles to overcome and execution risks if the deal goes through”, Oddo BHF analysts wrote in a note. These include headcount and under-utilized plants in Europe as well as the challenge of gaining antitrust clearance for a combined company that would have a strong presence in France, Italy and Spain, they said. Looming large over operations in Europe are tougher rules on emissions that kick in next year. Automakers’ fleets will have to comply with stricter caps, leaving FCA’s vulnerable to future fines. The automaker is a laggard on low-emissions technology whereas PSA plans to introduce 7 electric vehicles by 2021 and to make available all of its model in either electric or hybrid versions by 2025. Still, FCA brings PSA a long-sought presence in North America, a market that’s traditionally been more profitable for the car industry. Tavares also has a track record of turning around European automotive operations. “Tavares’ playbook has been to take on loss-making businesses and fix them, rapidly”, Bernstein analyst Max Warburton wrote in a note. “We believe he can achieve something similar at Fiat in Europe”. +++ 

+++ PSA and Changan Automobile will put an end to their struggling joint venture in China aimed at producing and selling DS models. According to a PSA spokesman, the French carmaker will continue to produce and sell DS cars in China, just not with Changan. As far as PSA is concerned, they also have a second, larger joint venture deal in the world’s largest car market with Dongfeng Motor. “We would like to thank Changan for their support over the past 8 years and confirm that DS brand will continue its presence and development in China”, said the automaker in an official statement. “The DS brand will deploy a new strategic approach to develop our business in this strategic market. PSA is fully committed to China”. Meanwhile, a Chinese outlet dubbed Yicai Global reported that Changan was seeking to sell its half of the venture, which had lost almost $700 million in the past 6 years as per the Chongqing United Assets and Equity Exchange. These assets are to be listed on November 22. PSA’s sales in China have declined from more than 700,000 units in 2014 to just 94,000 in the first 9 months of 2019. Even more shocking though were DS’ sales in China and Southeast Asia, with just 311 units sold in Q3 of this year. The PSA – Changan joint venture received a €500 million boost in 2017 to improve utilization rates at the Chongqing factory, which has an annual capacity of 200,000 units, yet has produced just 10 % of that number in recent years. +++ 

+++ RENAULT chairman Jean-Dominique Senard is under increasing pressure to fix the company’s relationship with ally Nissan after its other potential partner picked a different suitor. The alliance partners have had a rocky 2-decade partnership that was further shaken by the chairman of their alliance Carlos Ghosn’s arrest a year ago, to the extent that Renault earlier this year attempted a merger with FCA. With FCA now merging with PSA, Renault is left clinging to its Japanese companion. Automakers need the heft and scale provided by partnerships to face challenges from electrification, the rising popularity of ride-sharing and the emergence of self-driving vehicles. Sticking to the Nissan pact, and trying to improve it, now represents Renault’s best bet to remain competitive in that increasingly cut-throat landscape. “Renault needs it more than Nissan”, Steve Man, an analyst at Bloomberg Intelligence in Hong Kong, said of the alliance. “They all need to work out those issues and move on and become more profitable”. French finance minister Bruno Le Maire called Senard to emphasize the need to define the strategy of the alliance, he told reporters after PSA unveiled its agreement with FCA. “The alliance remains one very important one in the world and I’m very confident that in the next months, you will have a reinforcement of this industrial strategy for Renault and Nissan”, Le Maire said. “That’s the priority of the French state”. At the root of the tensions between Nissan and Renault has been a lopsided shareholding structure, with Renault holding 43 % of the alliance partner and Nissan owning just 15 % of Renault. Given its bigger size and superior earnings performance in recent years, Nissan has long demanded more sway in the alliance, including that Renault reduce its stake. With FCA no longer a viable partner option for Renault, the French company has less negotiating power with Nissan, said Tatsuo Yoshida, an analyst at Bloomberg Intelligence in Tokyo. At a meeting between the companies this week in Japan, as the deal to combine FCA and PSA headed for the finish line, Nissan executives did not explicitly ask Renault for a reduction in the stake, according to people familiar with the matter, who asked not to be named discussing private deliberations. A Renault spokesman declined to comment. A Nissan representative said there has been no change in the company’s stance regarding the alliance. Senard told a French radio channel this month that lowering Renault’s stake in Nissan was not on the agenda, though he cautioned “you can’t exclude anything”. In the same radio interview, Senard gave Renault and Nissan just months to amend the union. “If in 2020 we don’t extract the whole virtuous potential of this alliance, I’ll consider that I and my teams have failed”, he said. Earlier this year, the Renault chair pushed for the FCA merger despite Nissan’s reluctance, and their lack of support for the deal was a chief contributor to its derailment. Nissan wants to focus on fixing the partnership with Renault and viewed the addition of FCA into the mix as too big of a distraction, according to one of the people. In an attempt to restore trust, both Nissan and Renault have made changes in top management. Nissan replaced its CEO and Renault has embarked on its own chief executive search after ousting Thierry Bollore. Both companies are slowly turning the page on the era of Ghosn, who held their alliance together for years. +++ 

+++ This past week has been very eventful for FCA that announced that they will be merging with PSA so as to create the world’s 4th largest company in the industry as far as global sales are concerned. Now, in a call with analysts regarding third-quarter profits, FCA boss Mike Manley talked about his company’s relationship with TESLA and how it could move forward into the future. When asked about possibly buying an electric platform or platforms from Tesla, the FCA boss stated that if the merger goes through, then electrification would happen on a “grand scale” and that further cooperation with Tesla on vehicle-pooling would make sense, beyond what he described as a “hedge”. “It would be wrong of me to say ‘no’ ”, he went on to say, explaining that the potential of such an arrangement could enable both FCA and PSA to conserve capital. “The customer will be agnostic” to certain components, such as batteries and the drivetrain. Manley added that a company could buy a “skateboard” platform from Tesla, before tuning other systems such as the suspension and handling to suit various needs; this matters since FCA has a diverse portfolio of brands (Jeep, RAM, Dodge, Chrysler, Fiat, Lancia, Maserati, Alfa Romeo). As for Tesla, they have supplied other automakers in the past, such as giving powertrains to Toyota: the Japanese company sold its holdings after Tesla’s 2010 IPO. Manley also confirmed that FCA’s pooling deal with Tesla to avoid European emissions fines will end in 2021. “Our relationship with Tesla goes back a long way”, Manley said. “It really has helped us. But FCA are absolutely committed to reducing CO2 emissions around the world”. +++ 

+++ Volkswagen’s powerful labor unions are determined to block the company’s plans of building their new $1.4 billion factory in TURKEY until the country puts a stop to its offensive in northern Syria. “I want to say very clearly: the labor representatives repudiate approval as long as Turkey tries to reach its political goals with war and force”, VW’s global works council chief and supervisory board member Bernd Osterloh said. Earlier this month, the VW Group decided to put on hold the final decision on the Turkish factory, following criticism of the country’s military operations in Syria. Frank Witter, VW’s chief financial officer, told reporters this week that the company is concerned about the political situation and is monitoring developments. In addition, there’s no immediate time pressure for the German car maker to seek alternatives and capacity can be added at existing factories in Slovakia and elsewhere, Witter added. Ever since news broke that VW is postponing the project in Turkey, countries like Bulgaria, Romania, Serbia and, more recently, Greece have expressed their interest to host the new $1.4 billion factory. VW’s new plant is planned to produce the next-generation Passat and Skoda Superb, with an annual capacity of 300,000 vehicles. The original plan was to have the facility up and running by 2022. Labor representatives have great power in decision-making at VW, accounting for half the seats on the supervisory board and having far-reaching veto rights. The board is scheduled to meet on November 15 for the annual review of the company’s 5-year spending plans, including capital allocation for its factories worldwide. The plan to build a new plant in Turkey, a move that is currently on hold, raises questions as to the future of its existing sites, especially in Europe, just as the industry grapples with a difficult shift to electromobility. The European auto industry has many underutilized factories that weigh heavily on many automakers’ income statements. Once battery-powered cars, which are easier to manufacture than conventional models, are added to the productivity equation the problem could get worse, analysts argue. “The pace and market success of the shift to electrification is the key risk for VW”, said Justin Cox, director of global production for market forecaster LMC Automotive. “The timing of the production capacity switch toward battery-electric vehicles is a delicate process both operationally and commercially”. Workers at Audi are already wrestling with management over the future of its German plant in Neckarsulm, where it builds its most popular model, the A4. Although the Neckarsulm factory’s capacity utilization rate is likely to stagnate at about 60 % for the third consecutive year, VW was ready to approve a new multibrand factory. VW brand manufacturing boss Andreas Tostmann said the automaker needs the added 300,000 unit annual capacity that the Turkey plant would bring. “Not just for us, though. We are also helping out our Skoda colleagues suffering from production bottlenecks”, Tostmann said in late September at a press briefing. Tostmann is responsible for 16 assembly plants worldwide that employ nearly 104,000 people In addition to the roughly 3.5 million Volkswagen brand vehicles that leave the assembly line annually, these factories also churn out costs: €10 billion to be specific, with half of that expended on staff. Tostmann aims to contribute a cumulative €2 billion in savings at VW brand by the end of 2023. This year alone he expects to squeeze out about a quarter of that because of improvements at plants such as VW Group’s factory in Bratislava, Slovakia. The savings push should finally reverse this year the trend in manufacturing costs, which had been steadily rising since 2013. One of the sites that has so far been a drag on overall productivity is VW’s home plant in Wolfsburg, where production of the 8th generation Golf has just begun. Picking Turkey for a new plant would be controversial following the country’s military incursions into Syria that have sparked outrage across Europe. VW Group’s powerful labor unions last week said they would to block the plan until violence triggered by Turkey’s cross-border offensive in northern Syria has stopped. Tostmann said last month that VW is monitoring the situation in the region, adding that the automaker had enough cushion built into its timetable before a decision was needed. Meanwhile VW’s Emden factory in Germany, is slated to receive an investment of €1 billion to become VW brand’s second EV-only plant after Zwickau, home of the ID3. If the Turkey plant moves forward, Emden’s Passat output is expected to move there. Turkey is traditionally a major destination for the Passat, although sales have had suffered in part due to a sharp downturn in the country’s auto market as well as a plunge in the value of the Turkish Lira. Emden would be making as many as 120,000 units of a midsize full-electric sedan internally referred to as the ID Aero. Tostmann said earlier plans to build in Emden up to 200,000 VW Polo-size EVs called MEB Entry (after the EV architecture) have been changed and it will likely be built in Bratislava. What product might replace it in Emden has yet to be announced. “We anticipate utilizing the capacity installed”, Tostmann said. “I don’t know of another company willing to invest that kind of money in a northern German site, so Emden has a very good prospects as the second MEB transformational plant”. VW Group CEO Herbert Diess justified the Emden move earlier this year in part by warning that Skoda’s plants are running at 120 % capacity utilization, in essence operating 6 days a week. Paradoxically, he also warned that headcount reductions were a real possibility given that EVs can be built with 30 % less effort. Should the rate of output growth not keep pace, the remainder would need to be offset by a matching reduction in workforce size to protect margins. “Achieving this workforce cut purely through fluctuation and early retirement programs will be difficult”, Diess said in March. Tostmann said EVs may not lead to a sharp drop in capacity utilization of car plants. He expects EVs to lead to productivity gains between 15 % to 20 % in his sites. That means the brunt of any pain from staff downsizing due to EV production would be felt in the group’s parts plants. +++ 

+++ VOLKSWAGEN has confirmed it will launch 2 electric cars on its ID platform in China next year ahead of a huge expansion of its electrified range in the world’s biggest EV market. The attack will begin next year, when VW expects to sell 300,000 plug-in hybrids in China, increasing to roughly one million electrified vehicles before 2025. It will also offer 10 different electric ID models based on its new MEB platform by 2023, with the machines built and sold by its import business and various joint-venture operations. The first ID models to be launched in the country will be electric SUVs, which will likely be local-market variants of the forthcoming ID.4 or the larger ID Roomzz concept. From there, the firm will add the recently launched ID.3 to the line-up of its joint venture with SAIC. The company is also said to be developing a VW-badged MEB car based on the Skoda Vision iV concept, joining 2 other, yet to detailed MEB offerings. Although EVs are a key focus, Volkswagen has not abandoned combustion-engined vehicles. In the next year, VW will launch the Tacqua, a compact SUV, through the FAW-Volkswagen joint venture, with SAIC-Volkswagen launching the larger Viloran MPV. Volkswagen’s China boss, Stephan Wöllenstein, previously called China “the driving force” behind the company’s electrified cars. China has the largest EV market in the world, with more than 1.2 million EVs sold in the country last year. The China assault comes hot on the heels of the announcement of a new addition to the ID family, likely to be a variant of the Vizzion electric luxury saloon, due to be revealed at the Los Angeles motor show in November. +++ 

+++ Former Volkswagen Group boss Martin WINTERKORN told managers in mid-2015 to only partly disclose its problems with diesel-emission software to U.S. regulators, a former VW executive told a German court. The order was given at a meeting in July 2015, Heinz-Jakob Neusser, who was the head of engine development, said at a hearing. Neusser sued the automaker for wrongful dismissal in the labor court in the city of Braunschweig, close to VW’s headquarters in Wolfsburg. It’s the first time that Neusser talked publicly about the events that eventually led to U.S. regulators disclosing the probe in September 2015. VW admitted using the software in 11 million diesel vehicles, and the financial toll has so far reached €30 billion in fines and other expenses. Neusser, who has been charged both in the U.S. and Germany over the diesel scandal, told the labor court that he only learned about a week before the crucial July 25 meeting about software “irregularities” and suggested they should be fully disclosed. However, his suggestion wasn’t put into a report presented to the leadership and at the meeting, known as the ‘Damage Table’, Winterkorn decided not to disclose information, he said. “Winterkorn decided and ordered it, and there was no further discussion”, Neusser said. VW denied the account. It has long maintained that there are several accounts of the crucial meeting, and company attorney Thomas Müller-Bonanni rejected Neusser’s version. He said it was hardly credible given everyone knew that regulatory approvals for a new generation of models were at stake. “It’s totally far-fetched that in such a situation 2 board members would make a clear order to deceive U.S. authorities”, Müller-Bonanni told the court. “Instead, the issue was given back to the responsible units”. +++

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