Fiat's Plan Could Run the French Off the Road

[Plex]

Europe's track record with alliances isn't great. They have a habit of falling apart or provoking fights -- and that is just the industrial kind. Fiat's audacious bid to link up with General Motors' Opel subsidiary looks likely to spark trouble.

Within Germany, the prospect of two auto makers with similar products and shared engine technology merging raises union hackles. IHS Global Insight analyst Tim Urquhart reckons a quick deal could fall victim to German elections: Berlin's uneasy coalition partners go head to head in September. Fiat, already taking a gamble, will likely tread carefully on job losses.

France's two champions, Renault and PSA Peugeot Citroen, have most reason to fear Fiat's plan. With Opel, Fiat would move from No. 6 in Europe to No. 2, with solid positions in Italy, Germany and the U.K. It also would seize the regional industry's last big consolidation opportunity, likely with government help.

If Fiat succeeds in its bid for Opel, PSA Peugeot looks more exposed than Renault.

Options for PSA and Renault to respond look limited. Both have taken money from Paris, so complaints about aid for Fiat would ring hollow. Barring Italy, Fiat's and Opel's limited geographic overlap likely precludes competition authorities from blocking a deal. Merging to create a single French champion, with the prospect of layoffs, would infuriate unions.

If Fiat succeeds, PSA looks most exposed, lacking Renault's global alliance with Nissan. Thierry Huon, analyst at Exane BNP Paribas, suggests options for PSA could include deeper alliances with the likes of Mitsubishi Motors or India's Tata Motors. Remaking the industry along those lines would be nothing short of a revolution -- but then Europe has a track record on those, too.

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