By Foo Yun Chee and Giulio Piovaccari
BRUSSELS/MILAN (Reuters) - Fiat Chrysler and PSA are set to win EU approval for their $38 billion merger to create the world's No.4 carmaker, people close to the matter said, as they strive to meet the industry's dual challenges of funding cleaner vehicles and the global pandemic.
The green light from the European Commission would formalise the creation of Stellantis, a carmaking group that could tap hefty profits from selling Ram pickup trucks and Jeep SUVs to U.S. drivers to fund the expensive development of zero-emission vehicles for sale in Europe and China.
The all-share merger announced late last year would unite brands such as Fiat, Jeep, Dodge, Ram and Maserati with the likes of Peugeot , Opel and DS - while targeting annual cost cuts of 5 billion euros ($6 billion) without closing factories.
The Commission and Italian-American group Fiat Chrysler Automobiles (FCA) (MI:FCHA) (N:FCAU) declined to comment. France's PSA (PA:PEUP) did not immediately respond to a request for comment.
PSA and FCA shares reversed losses after the Reuters story was published. PSA stock was last up 3.4% at 17.06 euros, while FCA shares were 3% higher at 11.43 euros.
To allay EU antitrust concerns, PSA has offered to strengthen Japanese rival Toyota Motor Corp (T:7203), with which it has a van joint venture, by ramping up production and selling it vans at close to cost price, the people said.
FCA and PSA will also allow their dealers in certain cities to repair rival brands.
Following feedback from rivals and customers, the carmakers only had to tweak the wording of their concessions, with no changes to the substance, the people said.
The companies did not have to use the COVID-19 pandemic to argue for the merger, they said, adding the EU decision could come by the end of the year, ahead of the official Feb. 2 deadline.
FCA and PSA have said they hope to complete the merger in the first quarter of 2021.
The challenge of switching to electric cars has been complicated by the COVID-19 pandemic.
Just last month, FCA and PSA restructured the terms of their deal to conserve cash and raised their targeted cost savings because of the economic fallout from the health crisis.
The companies have said about 40% of the savings will come from product-related expenses, 40% from purchasing and 20% from other areas, such as marketing, IT and logistics.