No Other Choice

When France's desperately indebt Citroen and Italy's thriving Fiat, which stands next only to the U.S.'s Big Three among world automakers, announced merger plans last month, they got short shrift from Charles de Gaulle. In exercising an effective veto, the De Gaulle government charged that the deal would threaten "the independence of a very important French company."

Still, in the eyes of Citroen President Pierre Bercot and Fiat Chairman Giovanni Agnelli, the French government's non was not absolute. They kept right on conferring and finally produced a plan that won De Gaulle's approval. It called for joining the companies in a "common organism" that would command $2.8 billion in annual sales and be managed by Fiat and Citroen on theoretically equal terms.

As a result of De Gaulle's go-ahead, Bercot and Agnelli last week were hard at work trying to iron out details, such as what the "organism's" corporate name should be and where it should be head quartered (perhaps in Switzerland). Still, Bercot, for one, felt confident enough about the outcome to hail the agreement as a purely "European solution" to the threat of American industrial dominance on the Continent.

Lots of Leverage. Under the new arrangement, Fiat will fall short of achieving the 30-40% of Citroen stock that it had originally aimed for. Instead, it will get only 15%, with no strings attached. Yet Fiat will actually have much more leverage than that, since it will have a large share of a holding company that will control its new partner, Citroen. Most of the holding company's stock will come from France's tire-making Michelin family, which now owns over half of Citroen and which opened the original merger talks with Agnelli, an old friend of the family.

The present plan also gives Citroen an option to buy 15% of Fiat. Inasmuch as Citreen is already carrying debts of more than $100 million (including some $56 million to the De Gaulle government), and needs more capital to develop new models, there is virtually no chance that the French company will ever be able to take advantage of the option. The proviso is, therefore, little more than a face-saving device for De Gaulle.

A Limit to Stubbornness. Why did he finally--and reluctantly--agree to such a solution? The obvious reason was that he had no other choice. Chauvinistic as he is, he is also realistic. He has long known that Citroen's decline could only be halted by some sort of a merger. For a while, he urged a merger between Citroen and other French automakers --Peugeot and/or government-owned Renault. But that plan did not even begin to work out, and last month Citroen's Bercot laid his feelings on the line. "There is no substitute," he said. "It is Fiat or nothing."

At the same time, Fiat's Agnelli has never made a secret of his ambition to turn his highly successful company (1967 sales: $1.9 billion) into the first Europewide, European-owned automaker. He is convinced that such a firm will be necessary in the 1970s if the European auto industry is to weather American competition. He therefore let it be known that if he could not strike a bar gain with Citroen he would look elsewhere--perhaps toward West Germany's Volkswagen. Such a combine might so overwhelm France's entire auto industry that it would crumble within a few years. Not even Charles de Gaulle is stubborn enough to want that.

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