VW CEO not ruling out merger talks with FCA as core brand struggles

15 March 2017

In a marked U-turn from last week, Volkswagen (VW) CEO Matthias Mueller signalled on Tuesday he might be interested in partnerships. The release of detailed 2016 results showed operating profit fell 10% at VW’s titular core brand and that even though it is responsible for almost half of the group’s revenue, it accounts for just 10% of its underlying operating profit. 

Asked if in light of VW’s prospects the group would be interested in partnerships, Mueller said: ′We are more open on that account than we used to be previously,’ but stressed that this had ′nothing to do with FCA specifically.’ 

VW is preparing for increased competition in Europe after PSA (Peugeot Citroën) agreed to buy European-focused Opel to create a group of rival scale in the region. This comes at a time when it is facing new legal actions in Europe following the Dieselgate scandal and is investing less in the future, with lower spending on cleaner and more autonomous cars, the former perhaps being behind its struggles to prove itself to emissions regulators. 

If VW were to combine forces with FCA it would create a European giant with a 30% market share.  It would also address weaknesses in both companies; it would give VW a strong foothold in North America, traditionally weak for the company, through Fiat’s Chrysler operations; and boost FCA’s lack of scale in Asia, where VW is strong. 

However, it would also embroil both companies in disputes with unions and politicians in Italy and Germany.  The VW brand only struck a new deal with unions over job cuts last November, making such a prospect even harder to swallow.  It aims to save €3.7 billion annually to 2020 to lift its overall profit margin to 4% by that year, but this is still well below major rivals.