The Phantom Joint Venture – Part Two

Could a joint venture between Citroën and Lancia possibly have been on the cards, especially before they briefly shared a roof under Fiat?

After the discontinuation of the iconic Aurelia and its smaller sisters, Lancia spent the 1960s seeking a broader audience and larger profits. However, things didn’t go exactly as planned. Credit: motoristorici

Trouble in Turin…

Under Gianni Lancia, the Italian firm ran a costly racing program that gobbled up whatever profit its modest sales brought. Its cars were expensive to begin with, aiming squarely at the upper echelons of Italian society. In the post-war context, Lancia’s export efforts were always hampered, and not just by the high import taxes of the era: its cars, for all their mechanical refinement and excellent driving experience, had a niche appeal, which eluded the majority of the newly-emerging (or re-emerging) affluent potential customers. Too many of them viewed Lancias as too expensive for their body size, engine displacement, horsepower, and acceleration. Plus, they wanted something far more flamboyant. Clearly, the times had changed, and so had buyers’ tastes.

Lancia’s new boss, Carlo Pesenti[7] of Italcementi fame, gave Dr. Antonio Fessia[8] the go-ahead to realize his vision for Lancia’s future. Yet, he seemed blind to how Fessia’s ego and convictions were inadvertently undermining the company. His well-documented conflicts with Aldo Panigadi and Eraldo Fidanza, from which he emerged victorious, suggest that he could do no wrong in Pesenti’s eyes. Yet, certain key technical decisions he and his team made would raise many an industrial engineer’s eyebrow.

On left, Carlo Pesenti, Lancia’s boss from 1956 to 1969; on right, Dr. Antonio Fessia, his chosen technical director. Credit: ANSA (Pesenti) / Public domain (Fessia)

For starters, he was responsible for three different cars that used entirely unrelated engines, necessitating three separate engine production lines. The Fulvia’s narrow V4 engine in particular, appealing as it may be to Lancia purists, was exceedingly complex and costly to manufacture, to produce in different displacements (you also needed to change the V angle), and to maintain. This ate into the already slim profit margins of a compact car like the Fulvia. Also, it didn’t tolerate being worked on by ham-fisted mechanics. If I may use a horological analogy, it was a bit like using a Rolex 3135 movement in a watch where the elaboré-grade workhorse ETA 2824 would have performed perfectly well, with a lower cost of ownership to boot.

The Lancia Fulvia’s V4: technically exquisite, yet costly to manufacture, maintain, and develop into different versions. Credit: carthrottle

The Flavia, on the other hand, featured a flat-four – a nod to the CEMSA Caproni F.11[9], a project Fessia had worked on in the past; this car greatly influenced Lancia’s move to front-wheel drive[10]. The flat-four’s characteristic sound at idle was a bit of an acquired taste, but the engine itself was well-engineered and could be made in just about any displacement up to 2 litres and beyond. But how well-suited was it for the smaller displacements the Fulvia needed? A smaller capacity version of the flat-four was tried, but didn’t provide adequate performance[11]. To be honest, I can’t help wondering if things could have been improved with a different tuning and stroke ratio, but history isn’t written in hypothetical speech.

Then, there were the body shapes: each car’s four-door saloon and coupé versions were entirely different; so were their dashboards, instrument clusters, and so on. This negated whatever care was put into ensuring the Fulvia and the Flavia featured (very) similar suspensions and front subframes. So, Lancia’s performance at achieving meaningful economies of scale wasn’t exactly the best. 

Lancia’s new flagship, the Flaminia, was a textbook case of misreading the market. Its smallish V6 engine, over-engineered though it was, was always underpowered for the size and weight of the car, and gave it a pace that was more Armstrong Siddeley 346 than Jaguar Mk2. This wasn’t what jet-setters had in mind. The berlina version was left without any further stylistic development. So, it stayed resolutely stuck in the late 1950s, while competitors from the USA, Britain, and West Germany moved forward. Furthermore, it never gained features increasingly desirable in luxury cars, such as power steering and a proper automatic gearbox.

Styling-wise, did the Fulvia and Flavia Berlina fare any better? Remember, the people who could buy them now wanted flashier and faster cars. The Coupé versions were fantastic, and the Fulvia Sport Zagato was sublime. However, the Fulvia Berlina could best be described as functional, practical, yet perhaps too discreet for its own good. As for the Flavia Berlina, it didn’t come into its own until the magnificent Series II, also known as the Milleotto, came along.

…And Trouble in France

Much like Lancia, Citroën had a penchant for spending a lot of money on technological advances that often were years ahead of their time. Also, exactly like Lancia, Citroën gathered mountains of debt, both under André Citroën, and under Pierre Bercot. However, its problems weren’t caused solely by technical extravagance.

Citroën had to put up with both the DS’ teething problems that were caused by its extreme complexity and with a yawning gap in its range; specifically, in the profitable midrange segment between the subcompact Ami and the big and expensive ID/DS. Whereas Lancia had something, but too costly to produce at a meaningful profit, and too expensive and – at least initially – out of touch with the zeitgeist to achieve strong sales, Citroën had nothing to offer. Additionally, they needed an engine that would be powerful enough for export markets and still small enough to get around France’s tax horsepower system that penalized larger engines. 

In the 1960s, the DS and its stripped-down sister, the ID, were your only choices if you wanted a Citroën bigger than the Ami. Credit: classiccarcatalogue

It is right here that we’ll need to have a look at a few important landmarks of the French automaker’s history. Already in dire straits, it was taken over on 21 December 1934 by tyre manufacturer, Michelin. In 1958, Citroën Hispania SA (now known as PSA/ Stellantis’ Centro de Vigo plant) was established in the Spanish region of Galicia. This decision by Citroën pleased the Spanish government so much, that it exempted them from existing legislation limiting foreign ownership to 20% and allowed the French manufacturer to hold a 45% stake in the new firm named Citroën Hispania SA[12].

Citroën’s management understood that its lack of a midrange model hurt its sales and profitability. So, in an attempt to provide a technological workaround for the French taxation system with engines that would be powerful, yet of small displacement, they partnered with NSU to jointly develop Wankel engines through the Comobil (later Comotor SA[13]) JV in 1964. Additionally, in 1965, they acquired Panhard, with whom they’d been cooperating since 1953, hoping to leverage their experience in the production of mid-sized cars. Finally, in March 1968, in a move that Jacobs finds surprising[14], given Citroën’s financial problems, they spent $1.6 million to acquire a majority stake in Maserati.

Jacobs narrates that any euphoria that might have come as a result of Citroën’s acquisition of Maserati didn’t last – the grapevine was echoing with rumours that Citroën itself would be absorbed by Fiat. It was suggested that the Italian car giant would acquire a 30%-40% stake in Citroën from Michelin, who owned 52% of it. These rumours also caused worry for the people working in Vigo, as Fiat would understandably be more interested in its own huge investment on Spanish soil (SEAT – Sociedad Española de Automóviles de Turismo SA) than in Citroën’s smaller plant in Vigo. If they took over Citroën, why would they want to continue operating two car factories in Spain afterwards[15]?

De Gaulle’s Veto and The Battle of Citroën

De Gaulle (left) vetoed Agnelli’s (right) initial bid to acquire Citroën, which was led by Bercot (middle). But the reasoning behind his decision wasn’t as simplistic as many people think. Credit: IMDb (left) / que2 (middle) / Cittá di Torino Archive (right)

On 10 October 1968, de Gaulle declared that he rejected Fiat’s bid to acquire a 49% interest in, and management control over, Citroën[15]. His motives were more nuanced than mainstream car journalism would have you believe: conservative though he was, he was an astute, pragmatic statesman who didn’t act on a whim, or out of spite, or dumb nationalism. In fact, his position had very strong official support from Peugeot and Renault, whose executives petitioned him to block the deal.

Many people in France, including politicians and auto industry executives, feared that France stood to lose control of its presence in this sector. Already in 1964, Chrysler had acquired a 64% stake in SIMCA (Société Industrielle de Mécanique et Carrosserie Automobile) from Fiat. If Fiat, having just sold SIMCA to the Americans, acquired Citroën, two of France’s four major carmakers would be owned and controlled by foreign interests.

But why did the French fear foreign control of half of their auto industry? In those distant days, governments actively discouraged imports and were fiercely protective of their local industries – to do so, they imposed punitive import tariffs, especially on goods that were produced locally. So, many foreign industries resorted to establishing production lines in the markets they wanted to enter. But even then, governments – including fascist, anti-labour ones like Franco’s – weren’t keen on giving foreigners complete control over these factories. As Jacobs mentioned, Citroën being allowed to have a 45% stake in Citroën Hispania was an exception rather than the norm[12].

The key to understanding governments’ desire to keep some control over foreign investments in their territories is jobs: a foreign company that starts a factory and then sees its investment wasn’t as successful as it’d like will more easily give people the sack or even shut the entire factory down if it has complete control and ownership over it. But if the local government has a vote and a meaningful stake, then more pressure will be put on the company’s top brass to avoid layoffs and find another way to make the plant profitable instead.

De Gaulle’s veto didn’t put the kibosh on Fiat’s drive to acquire Citroën, though. Instead, negotiations continued and a mere week later (17 October, 1968) white smoke emerged: Fiat would get a 26% non-voting interest and a 15% direct voting stake in the company that was now renamed as Automobiles Citroën SA. Although Fiat injected significant amounts of money into Citroën, the French company still suffered serious operational losses: $23 million in 1968, $11.5 million in 1969, and an alarming $80 million in 1970 – the latter figure most likely because of the GS’ and the SM’s R&D and preparation for mass production.

Meanwhile, the Battle of Citroën raged on: in 1970, Fiat came back, requesting permission to increase their direct holding in the French automaker from 15% to 49%. Eventually, the Italians paid $80 million to acquire a 49% interest and management control of a new holding company named Participation et Développement Industriel (PARDEVI), with Michelin having a 51% equity stake, but with its veto powers being merely symbolic. PARDEVI owned 55% of Citroën, with private investors having 45% of it.

Would this arrangement have been possible under de Gaulle? It’s hard to tell. Fiat’s plan to establish PARDEVI was only approved when he was succeeded by Georges Pompidou[14]. As a matter of fact, it was approved after de Gaulle’s death. On 21 December 1970, the ownership mix of Citroën was settled – at least for the time being – at 28% Michelin, 26.9% Fiat, 7.1% Berliet, and the remaining 38% was sold to private investors.

This brings us back to Robinson’s narration[5], which sadly perpetuates a conflation of events from entirely different years. This, in turn, causes people to misunderstand and misinterpret their meaning and impact. First of all, de Gaulle vetoed Fiat’s acquisition of Citroën in 1968 – please make a note of this. Second, it has already been established that his reasoning was not a fear that French technology would be given away to a foreign company. Third, his veto didn’t stop PARDEVI from eventually getting signed. Finally, Lancia couldn’t possibly have been affected by de Gaulle’s veto, as it was not yet part of Fiat’s portfolio.

What About Lancia, Then?

Before we proceed any further, we must understand one basic reality concerning how industrial mergers, partnerships, and takeovers work: even in today’s environment, with the emasculated regulatory authorities, one does not simply come out of the blue, saying “hey, I wanna buy this huge industry and do whatever I want with it, here’s the money” and get the deal rubber-stamped as if they were buying a pack of chewing gum at a convenience store.

The groundwork for such accords is laid many months before they eventually get approved by the authorities and signed by the parties involved. There are negotiations concerning all manner of things, from product portfolio structure to labour relations and from ownership configuration to whether a new company will be founded and where its headquarters will be.

We must also remember that mergers between car manufacturers are always big news, because of the sheer number of jobs that may be created or lost as a result of these deals, so there are plenty of verifiable, reputable, third-party sources discussing them. In his book, Jacobs cites contemporary news coverage of the Fiat-Citroën deal by the New York Times, the Wall Street Journal, Reuters, and so on. On the other hand, the car journalists and writers who still push the ‘CX/Gamma JV that was killed by de Gaulle’ story don’t. Therefore, I’m afraid I’ll have to raise a big ‘citation needed’ banner.

Credit: xkcd

Pre-PARDEVI Technological Commitments

Do we have any actual evidence that a JV between Citroën and Lancia was ever considered, pre- or post-PARDEVI? Well, before PARDEVI was signed, I have to say no. In fact, we have reasons to believe it wasn’t. For starters, I’ll use Dr. Fessia’s death in August 1968 as a landmark.

While Fessia was still alive, I’m not sure his team and Citroën’s Bureau d’Études would find much common ground to work on, especially regarding power plants. We must remember that Citroën was already working with NSU for the development of rotary engines (their Comobil/Comotor JVs), while Lancia, with its three different engine families, had more on its plate than it could possibly handle. Furthermore, the design brief for Projet L (the CX) required the car to use “the Maserati V6 from the SM and a Wankel trirotor[22].” No mention of any Lancia engine here.

After Fessia’s death in August 1968, Lancia was left without a technical director, so, who would Citroën talk to? It wasn’t until Fiat came in and wisely appointed Sergio Camuffo to pick up the pieces and rally the remaining engineers that development of new products could commence[16]. Besides, at that time Citroën was preoccupied with getting the GS and the SM out.

Post-PARDEVI, though, things are more complicated: Citroën worked on the Fiat-based subcompact Projet Y, which eventually, having ditched the Fiat underpinnings, begat the Visa and the Romanian-built Axel[17][18]. As for Projet L, it had a brush with Lancia’s intellectual property, and Lancia’s Tipo 830 project had a brush with Citroën’s, but this is something we’ll look into in the third and final segment.

Lancia’s Pre-PARDEVI Debt

Everyone in the industry knew that Lancia was struggling financially, and not just because of Fessia’s decisions. The company had suffered a number of setbacks that severely hurt its finances, and most likely cemented the resolve of Italcementi’s CEO to stop pouring money into what now looked like a money pit. Franco Amatori documented a serious sales blow Lancia received in 1964, a ruinous NATO contract, and the cancelation of an order for 5,000 vehicles (3,000 trucks and 2,000 passenger cars) for the Indonesian government after President Sukarno was overthrown by CIA-funded military officers led by Major General Suharto[19][20]. So, Pesenti left the company on life support, waiting for the end to come.

Now, who would enter into a JV with a company bankrupt, effectively headless, and caught in the middle of a mass exodus of engineering talent? If Bercot wanted to collaborate with Lancia, the only option would be for Citroën to absorb it, like it did Maserati – a marriage that would eventually prove unsuccessful. But would that be sensible?

Credit: AP Archive (left) / que2 (right)

Besides the lack of evidence pointing to something like that, I highly doubt that even the extremely bold and audacious Bercot would have considered the absorption of Lancia as a palatable option. Keep in mind we’re talking about the man who, despite Citroën’s massive debts, insisted that the company was “not in trouble”, and stuck to his expansionary drive[21]. Still, even Bercot could see that he’d have to convince Michelin to throw an awful lot of money at a company that was practically on its deathbed, as if the absorption of Maserati wasn’t enough. As Michelin was already fed up with Citroën’s financial troubles, this was less likely than someone who doesn’t play the Lotto winning ten consecutive quadruple jackpots.

In the third and final part, we’ll examine whether the CX’s and the Gamma’s projects ever met, if they shared any common technical and mechanical roots, and what caused their development paths to diverge.

Sources, quotations, and acknowledgements: See Part One.

Author: Konstantinos Tzoannopoulos

Industrial engineer. Disgruntled lover of Italian cars. Virtual worlds dilettante.

16 thoughts on “The Phantom Joint Venture – Part Two”

  1. This series continues to delight – thank you KT. Though I’m not totally convinced by your assessment of De Gaulle…..

    The technical advances (leaving aside their execution & reliability) of the DS did not include the engine. A Flavia engine could have made it so much better. We can but dream.

    1. CDG wasn’t my cup of tea either, but I have to admit that his actions were always the result of some methodical deliberation. Furthermore, the turn of events speaks for itself, as does the chronology.

      Yes, the DS’ engine wasn’t the last word in refinement. But when it came out, this was the only engine Citroën had. And Flavia’s flat-four didn’t even exist in prototype form when the DS was being developed.

    2. If things had gone to plan, the DS would have had a 1.8 flat six. Walter Becchia (who had a BMW motorcycle and was a big fan of boxer engines – see 2CV) didn’t manage to extract enough power from that unit and then the old Sainturat engine was pressed into service.

  2. A great story, well told, and all unknown to me, so many thanks, Konstantinos.

    Even if it was only poorly informed speculation, there was still a certain logic to a tie-up of some sort between Citroën and Lancia. Both companies were targeting customers who appreciated technical sophistication and innovation. However, as Konstantinos points out, Citroën and Lancia had pretty fixed and divergent ideas about how to pursue this.

    Looking forward to the final instalment.

    1. Thanks, Daniel. I really don’t know where the whole “Citroën-Lancia-CDG” story came from. I first read it in some of Martin Buckley’s pieces. I wonder where he got it from. Perhaps in the same place LJK Setright got his etymology for “pegasus”…

  3. That’s a fascinating article and clearly the result of some very thorough and level-headed research – thank you. Like so many articles, here, I found it triggered thoughts about wider issues, such as the role and benefits of local government involvement in manufacturing, particularly as evidenced by Volkswagen’s example.

    I look forward very much to the next instalment.

  4. I’m unusually late to the party today. Great research and a fascinating read, Konstantinos. Looking forward to the next installment.

  5. The story that Gamma was planned as joint venture with CX I learned first in the end seventies as a friend of mine was learning office clerk at the austrian importers at that time in Vienna, SAV SteyrAutomobilVertrieb. He was often down in the workshop when his time allowed this and I remember when he told about numerous Gamma engines to be exchanged on warranty. The wooden cased engines arrived truckwise in Vienna and once he allowed me to join an engine exchange. There the master showed some points in the emptied engine bay – I cannot remember where exactly – and mentioned these beeing typical Citroen components as beside other details Ganma Berlina should show up with CX Type shock absorbing. And this master explained that the divorce between Citroen and Lancia led to an time delay of Gamma to the market as the suspension layout had to be redone beside other details.

  6. Very interesting articles, thank you.
    As a tangential thought, the lack of Citroën models between the twin cylinder A series and the ID/DS is often commented on, but few manufacturers had a full range of models post WW2.
    For example – in the USA the big three were pretty much full size only until the compacts for 1960. Ford of Britain had nothing between the side valve small cars and the family Consul until the Cortina in 1962, GM Europe no small cars until the Kadett/Viva at the same time. VW were pretty much just Beetle derivatives until the typ 4 in 1968.
    In France there was the influence of the Pons plan, Peugeot had one basic model until the 204 in 1965 and Renault didn’t have a range as such except the 4cv/Dauphine until the 60s either.
    The only manufacturer that offered a full range was BMC but it wasn’t profitable.

  7. “including fascist, anti-labour ones like Franco’s”

    I am not a friend of Franco, but I must say:

    1. Franco invaded no country. Never. Even the Blaudivision in Russia was formed by spanish volunteers integrated in the german army. Fascist dictators invade countries. Franco never did such a thing in his 39 years of absolute power in Spain.

    2. In 1960s Spain you could buy Marxist propaganda sold openly. For instance “Cuadernos para el diálogo”.

    https://en.wikipedia.org/wiki/Cuadernos_para_el_Di%C3%A1logo

    I own an extensive collection of Marxist books an Phamplets openly printed and sold in Francoist Spain (from the 1960s, of course, Francoist Spain was very different in the 1950s and 1940s)

    3. Labour was over-protected under Franco. It was very difficult to fire employees. Labour Courts under Franco (and now) were prediposed to protect the “weak”, i.e. the employees. Franco also created a National Health Service and the ultimate wonder in Spain: Vacation time payed by the employer.

    In fact the “Pactos de la Moncloa” (1977) limited some labour rights:

    https://en.wikipedia.org/wiki/Moncloa_Pacts

    Some labour rights inherited from the Francoist era were untenable after his death in 1975.

    I could spend hours telling bad things about Franco, but it is factually incorrect to call him “fascist” or “anti-labour”.

    1. I find myself somewhat bemused by the statement that “Fascist dictators invade countries”, as though there is some subsection of the ‘Fascism for Beginners’ handbook that sets out the ground rules for ultranationalist, totalitarian dictatorships. To be honest, I’m not particularly troubled about the semantics of whether General Franco was technically speaking a fascist or not – his regime was (to my mind) nasty, brutal, and repressive. Actions, not words.

      I would also point out discretely that the statement “I am not a friend of Franco but…” does lead one to imagine the opposite.

  8. “Now, who would enter into a JV with a company bankrupt, effectively headless, and caught in the middle of a mass exodus of engineering talent?”

    I’m impressed with the detail and reconstruction of an era that has long confused many of us. Thank you for these very lucid articles, well done.

    Remain a bit concerned with one point, that of “mass exodus” suggested above. Key engineers under Fessia, such as Zaccone Mina, De Virgilio, Romanini, Materazzi, all stayed in place. And the engineering department at Lancia wasn’t all that big in any case. The issue was more likely they were overwhelmed by the strategy proposed by Fessia, one of modular products to compete in the different Euro markets (with differing regulations) – an approach, while sound in intent, was much more intricate and all-encompassing than initially thought. A look at the Beta engines, introduced under Fiat control a few years later (in the early 1970s) shows three different displacements, but something like 12 or more variants for different markets. One might then say that Lancia got caught with their older niche strategy, ever-expanding complexities, and an absence of good strategic leadership.

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