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Stellantis CEO: “This merger is not a defensive move”

Carlos Tavares, CEO, Stellantis on why the multi-billion dollar merger of PSA and Fiat was born out of necessity

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Bringing together two groups of the size of Peugeot owner PSA and Fiat Chrysler Automobiles is no easy task. From the 16 January 2021, the pair formally combined under the corporate umbrella of Stellantis and it will be the job of CEO Carlos Tavares to oversee a transition that hopes to follow the example set by other super-groups such as the VW-led Traton to forge a new profitable path for the 14 brands now inside the new brief.

“This has been a very intense journey since we signed the binding agreement back in December 2019,” he begins, adding that the intensive process brought together cross-company teams to deliver over 12,500 pages of documents for the different filings that needed to make the trans-Atlantic corporation a legal entity.

Tavares says this was managed in “very good timing” and with no delays even as the Covid-19 crisis raged on. He says that the pandemic is only one challenge of many facing the new group.

“This merger is not a defensive move. Of course, there is a defensive dimension based on the challenges that we see ahead of us and certainly this merged company will help us to overcome those challenges, but there will be also an offensive move to make sure that we start this new company with a new mindset with open eyes looking at what is stimulating us in the marketplace.”

During a formal media briefing explaining the move, Tavares is at pains to stress that the core problem shared by the US and European brands of Stellantis is the search for profitability at a time of global uncertainty as well as vulnerability to the threats of rising competition in its core markets of North America, Europe and the Middle East.

Digging into the numbers from each of those markets, he says the Americas represent 44% of the group’s turnover and its even stronger across the Atlantic with 46% of turnover coming from Europe, the Middle East and Africa.

While brands like Chrysler, Peugeot and Fiat hold onto their status as well-known car and van names with consumers, the reality is they are in a desperate fight for survival. Cost pressures on each means they can be stronger together than apart, the Stellantis CEO says, adding that the group is squeezing out an extra 5 billion Euros by using common engineering assets, as well as smarter procurement focusing on the cost competitiveness of everything the group buys. He explains that both strands represent 80% of variable costs in the busines before proudly stating that much of the savings are coming from suggestions and ideas of teams throughout the organisation.

“This unique company is going to have a different sense of competition and will be able to develop more efficiency and effectiveness. It will be able to grasp opportunities and will become at the end of the day,” says Tavares.

“We believe that standard is needs to be great rather than big. We want to gain scale, and of course make sure that we use this scale to develop innovation. We will use this scale as a lever to be more disruptive and  do things that some other companies could not do.”

To create this ‘disruptive’ culture, Tavares is clearly taking inspiration from big technology companies that want to bottle the fire that powers smaller entrepreneurial firms. He says Stellantis is creating a great place to work to attract the best talents. Expanding the point, he says this should mean the company can provide “great products and great services” while making a contribution to the communities its brands serve.

“(We will) find great ways to innovate and great ways to be creative and innovative using the power of scale. We want to be a great rather than big company but, of course, if things are properly done, wil eventually become an even bigger company.”

In some ways, it is difficult to see how. The combination of PSA and FCA represents a footprint that sells cars in more than 130 countries and an R&D and industrial operation spread across more than 30 countries. It also boasts a leading market position in at least three regions, including some parts of the Middle East. Tavares says this is a strong foundation but there is a long way to go if the group is going achieve his ambition of making Stellantis a leader in mobility.

He adds: “The combined entity as a consequence based on the 2019 numbers had an adjusted operating profit of around 12 billion euros and adjusted operating profit margin of around seven percent. And then automotive operational free cash flow of above 5 billion euros. So it’s very, very strong. And our purpose is to use this power this scale to do great things and to be offensive. We will bring innovative solutions to the new mobility era in which we are going to be hopefully one of the major players.”

The COVID-19 pandemic has been a wake-up call to bloated large corporations that have been unable to instigate the sort of nimble side-stepping decisions needed to get procurement, production and delivery to adjust to volatile demand and supply shortages. It is too early to judge whether the creation of what Tavares describes as nine major committees within the group will give the organisation the agility to be the upwardly mobile disrupter he wants, but he is convinced it can enable Stellantis to react far more quickly to changes in the market from now on.

“We can make all the relevant decisions of the company like ours in a professional way and in a focused, fast way,” he explains; sharing that vitally the top management on the board recognised that more power needs to be shared across the group. “I think everybody feels that this is the right way for a company like ours and we will make sure that we are going to use this in our large family for a significant and intensive internal benchmarking.

He adds: “We need to understand that the covid-19 crisis has clearly shown us that we need to be more disruptive and this is exactly what we have in mind. We are going to leverage the diversity of our people. They are coming from very different horizons and each of them needs to stay where he or she is right now because we love them. It is going to be our job – my job – to leverage this fantastic diversity of the company to create exciting proposals to the universe in which we operate. By the way, we can compare our diversity with the lack of diversity of some of our competitors, and I believe that having a highly diverse company is a strength in today’s world.”

Turning to the challenges of the market, Tavares again suggests that the merger needs to be as offensive as it is defensive, “based on the challenges that we already know but we also know that it’s not only about overcoming the challenges.”

He continues: “It’s not only about being excellent in a zero-emission mobility, autonomous vehicles and connected vehicles. It is also about being provocative with our business models; doing different things; understanding that we need to move more onto the tech company side.”

Progress from now on will be judged on how well Stellantis is able to pull its enviable list of commercial vehicles and vans; its pickups; passenger vehicles; SUV crossovers into the orbit of consumers in the digital space. Any new car or van buyer – or even current owner needing servicing or parts – is now more likely to be using an app or PC to get what they need, including the services of fleets. With one eye on growing in the Chinese market, Tavares still wants to build into this space; recognising this will mean a raft of new services while selling more vehicles in more territories.

Find out how Stellantis is making the transition into the world of smart mobility in the February issue of Truck and Fleet Middle East magazine. 

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Stephen Whitehttps://truckandfleetme.com/
Stephen White was formerly editor of Big Project ME.
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