Given the huge challenges and investments all car makers are facing, mergers, such as that we have seen proposed today between FCA and PSA, are unsurprising.

Independently, even those businesses the size of FCA and PSA are still too small to deal with the investment challenges needed to reduce CO2 emissions to levels legislated by the European Union.

Full story: PSA Group and Fiat Chrysler confirm merger plans

To meet EU legislation that cuts CO2 emissions to an average of 95g/km by next year, with further reductions of 15% by 2025 and 37.5% by 2030 and fines for every g/km over that amount on each and every car sold, requires vast investments in new technologies, while still having to develop appealing and improved cars to sell today to fund those investments. R&D spends will never have been greater. 

The EU CO2 legislation has turned the industry as we know it on its head. All brands are facing challenges to meet it, even more so for the likes of PSA and FCA whose core brands are rooted in the mainstream. 

When you’re selling each car you make for a few thousands pounds less than premium brands do, yet you still face the same development costs to create such a car, the books become even harder to balance. PSA and FCA will be feeling it more than most, and are seeing the segments they’ve always been strongest in (city cars, for example, that provide affordable, honest transportation to buyers young and old) become obliterated by the requirements of the EU legislation.