January 25, 2021 12:00 AM

Stellantis is born into a new world

BLOOMBERG

The world looked much different when Fiat Chrysler Automobiles and PSA Group agreed to merge in December 2019.

Although sales were expected to slow in North America and Europe in 2020, the industry couldn't have foreseen the economic damage — and resulting lifestyle changes — that a mysterious virus beginning to spread in China soon would unleash. FCA and PSA now begin combining their operations and setting priorities amid a migration from crowded cities to roomier suburbs that could have lasting impact on consumers' vehicle needs.

"It's interesting because, first, it shows how fragile we are in terms of being able to anticipate the future," Carlos Tavares, CEO of the newly combined automaker, Stellantis, told Automotive News. "Secondly, I think it also brings a new perspective to the potential of the individual freedom of mobility."

CEO Carlos Tavares says the merger will allow Stellantis to innovate.

Tavares said the health crisis has "shown us that we need to be more disruptive." The merger ensures that Stellantis will be a sustainable unit with the capability to develop "versatile and affordable solutions" in the years ahead, he said, while the scale of the company "will help us be more efficient in the things we already do, and it will give us more capability to innovate in a number of areas."

The newly combined entity — now the world's fourth-largest automaker based on both parties' 2019 sales — has to plot strategies for a long list of brands as it responds to evolving consumer preferences and economic uncertainty created by the pandemic.

Tavares said the automaker, with its broad roster of utility vehicles, vans and trucks, has a presence in the most profitable areas of the industry. Stellantis is making money in the Americas and Europe and has the opportunity to "do something good in China," he said.

Stellantis strategy

With the merger of Fiat Chrysler Automobiles and PSA Group complete, Stellantis CEO Carlos Tavares said the automaker is a stable unit that can focus on innovation. Here's a look at several topics Tavares touched on last week:

Bottom-up approach: Tavares aims to establish a cohesive, "bottom-up" dynamic that considers input from younger workers on the company's "strategic task teams." He wants them to be "deeply involved in the different task teams that are going to work on the different breakthroughs that we are going to submit to them."

Executive team: Tavares has 38 direct reports, more than twice as many as he had at PSA. He said the team is made up of "strong characters, a great deal of talent and expertise" and people who know "Stellantis is a once-in-a-lifetime opportunity."

Peugeot in U.S.? It doesn't appear Tavares is in a rush to bring Peugeot to the U.S., a market it was pulled from in 1991. He believes it makes more sense to focus on the existing American brands than to spend a lot of capital on a new venture.

Captive lender: Stellantis has the expertise and partners to potentially establish its own captive lender, Tavares said. "If sales financing in the U.S. is something that can help to improve the profitable business that we have in the U.S., for sure. We will consider, and for sure, we'll look for a solution, and hopefully, we'll be able to find one."

Saving money: Around 80% of the total synergy amount will come from how Stellantis leverages the "volume-scale effect in the way we procure parts" and uses common platforms and parts, Tavares said. The company's projected cost savings have risen from $4.5 billion when the merger was proposed in 2019 to about $6 billion because of ideas from cross-company teams.

"We are blessed with a 14-brand, iconic portfolio," Tavares said. "Those brands will absorb our passion for freedom of mobility as we understand that freedom of mobility is becoming an even stronger expectation after everybody has experienced the lockdown situation. ... It is important that we answer that expectation in the most efficient way."

Managing such a broad portfolio could prove cumbersome. But all of the company's plants and brands around the world "will be given a chance," Tavares said in an interview with German newspaper FAZ. "Of course, that doesn't mean we don't have to change things. We have to become smarter and more efficient."

POST-MERGER PLANS

At Stellantis' introductory news conference, Tavares said executives were not planning for job cuts but hadn't entirely ruled them out, either. Conversely, cuts by FCA and PSA "would have happened had this merger not been a success," he said, calling the tie-up "a fantastic shield against social problems in the two companies."

With the merger completed, Tavares says he plans to visit the company's major operational centers in Italy and the U.S. in the next few weeks. He will first meet with the internal teams and give them a chance to ask questions.

After those initial meetings, he'll turn his attention to getting acquainted with U.S. dealers on another trip. Tavares will consult with former FCA CEO Mike Manley, who now heads Stellantis' Americas operations, on the best way to interact with the dealers.

Tavares has charged the new company's management team with building a strategic plan from the ground up to go on the offensive. They'll need to do that without knowing how long the pandemic's effects will last.

S&P Global said automakers found success in the second half of 2020 in the U.S. as profitability recovered. Demand was bolstered, in part, by strong housing starts, the consumer shift away from public transportation and a flight to the suburbs during the pandemic, according to a report last week.

It’s a similar story in Canada, where, in most large urban regions of the country, population growth slowed from July 1, 2019, to July 1, 2020, according to Statistics Canada. Toronto, Montréal and Vancouver continued to see more people moving out to other regions of their province rather than moving in.

'WHY WE EXIST'

As for the shift away from urban centers, researchers such as PricewaterhouseCoopers say cities could regain their appeal in a few years. But a recent real estate report from the firm says the shift already had been occurring before COVID-19, and PwC has called accelerated suburban relocation during the pandemic "The Great American Move."

A continued rush to the suburbs wouldn't bother Tavares. These consumers, he said, will still need cars to get around.

"I think it just opens the perspective of more breakthrough-thinking about the mobility devices that we want to use in the urban areas and the cars that we must have to live in the countryside with a better quality of life," Tavares told Automotive News. "So at the end of the day, this is not creating any stress. I think it's just opening our minds to other areas for innovation, which I think is fine. We are here for that; that's the reason why we exist."