The operational strike power of Carlos Tavares, the general manager of Stellantis, has struck once more… And very hard once once more with the publication this Wednesday of the first financial results of the group born a year ago from the merger of the PSA and Fiat Chrysler. Spectacular results since the new entity, which claims the rank of fourth car manufacturer in the world, recorded an operating profit of 18 billion euros for a turnover of 152 billion euros. That is an operating margin of 11.8%, well above industry standards which, at best, are around 8%. Even the premium groups show profitability ratios of between 9 and 10%.
An unfavorable context
This performance is all the more remarkable in that it takes place in a most unfavorable context with the rise in the cost of raw materials and the shortage of semi-conductors. This prowess is explained by the Carlos Tavares method, applied many times with success in the past, and duplicated today on a larger scale.
The one who defines himself as “a performance psychopath” is reputed to be an iron-handed boss: operational and commercial discipline, obsession with “pricing power”, frugality at all levels… An iron hand in a velvet glove but whose results are indisputable.
The organization chart put in place the day following the merger clearly gave a hand to PSA management, tried out the method and left to evangelize the Italian-American part of Fiat-Chrysler. In a few months, Italian brands immediately stopped discount sales, stock galore in concessions…Anything that might affect prices and residual value (resale price).
Alfa Romeo triggers a virtuous dynamic
Thus, Alfa Romeo immediately reaped the benefits of this recipe with rising average prices, and increasing rates of equipment and finishes. The premium sports brand, headed by Jean-Philippe Imparato, a fervent defender of the “pricing power” he put in place when he ran Peugeot, has seen its power rise by almost one point. It is thus repositioned just above the average for brands in the segment (+0.1 point). It’s not much, but the brand has closed the breach, and expects a virtuous dynamic that will now be fueled by an ambitious product plan: five new models by 2026.
The twelve brands of the group are all subject to this commercial discipline and thus participate in this dynamic of profitability which increases the average unit purchase price.
But the Tavares method is also brewing behind the scenes… The Stellantis group has thoroughly reviewed its industrial organization, redeployed the missions of each site, reduced the size of some of them, particularly in terms of surface area… Italian factories, long decried as being underutilized, have all been screened for “Tavaresque” cost-killers: the Termoli site (East) will be transformed into a gigafactory, while others have been allocated new models.
Flex-office, house arrest
Throughout the world, support functions have been subject to new organizations favoring telework, in order to yield m2 of office space. In France, the former site of Trappes which brought together the offices of FCA France will be sold, the 250 employees will join the headquarters of Poissy by playing with the flex-office. The height of frugality… Maserati France no longer has offices, each employee now being assigned to residence for any work office.
However, the industrial synergies are not yet complete since the next ranges will now be designed on the same platforms, which should amplify the economies of scale for each model. Management estimated that it was ahead in its synergy objectives with 3.2 billion euros in 2021, while the initial objective was to reach 5 billion euros in annual synergies in 2024.
Solid fundamentals
But Stellantis had strong backing to deliver such financial results. First, the PSA group was particularly profitable on the eve of the merger with a margin of 8.5%, and the rise of new Citroën or Opel products promised new sources of profit. On the FCA side, the North American activities were major contributors to profitability. Jeep and RAM are extremely profitable and erase Chrysler’s difficulties. Thus, this market which still weighs 70 billion euros in turnover, posted a profitability of more than 16%… That is, a ratio close to Porsche. Finally, as difficult as the year 2021 was, it nevertheless made it possible to sell more high-end cars, without promotions, and with ever higher prices, as demand was so strong.
The Tavares method seems to unfold like a steamroller over the entire industrial structure. But the group still has to resolve several major strategic issues such as China, Stellantis’ real blind spot in terms of sales volumes. The group will also have to meet major technological challenges, whether around electro-mobility or software. In addition, questions continue to arise for a certain number of brands whose sales are so Lilliputian that their sustainability questions, such as DS or Lancia, which Tavares has decided to reconnect. Finally, industrial restructuring is still far from complete. Carlos Tavares will finally reveal his strategic roadmap next Tuesday, March 1.
strategic road next Tuesday March 1st.
