Analyst Floats Powertrain Merger, Spinoff For GM, Fiat Chrysler

General Motors Company

and Fiat Chrysler Automobiles NV

should combine and spin out their powertrain operations, forming a $40 billion standalone business, an analyst said Friday. The resulting new company would benefit from better use of capital as well as flexible labor agreements, while the two automakers could sharpen their respective focus on brand improvements, according to Barclay's Christina Church. Although GM has rebuffed merger overtures from Fiat Chrysler's Chief Executive Sergio Marchionne, Church said a "targeted alliance" is more attractive than a full blown merger. But Reuters reported Wednesday that GM hired Goldman Sachs and Morgan Stanley for advice as Marchionne continues to lobby GM investors about a merger. http://www.reuters.com/article/2015/06/17/us-general-motors-m-a-fiat-chrysler-excl-idUSKBN0OX2P620150617 Church said a powertrain deal presents less risk and would be help create "a more modular value chain for automotive, similar to that of the tech industry." Church dismissed speculation that Marchionne might turn to Peugeot SA

as a merger partner in the event his GM overture falls flat. "It is unclear how bringing together two businesses with excess European capacity, underinvestment in product and cash constraints could create a better whole," Church said. Church reiterated an Overweight rating on Fiat-Chrysler, raising her price target about 3 percent to EU16. On GM Church maintained a $44 target and Overweight rating while on Peugot, Church retained an Underweight rating but boosted her target 21 percent to EU17, citing improved earnings estimates.