Clouds are gathering in the sky of Stellantis. The Franco-Italian-American giant, born from the merger between the Fiat-Chrysler Automobiles (FCA) and Peugeot-Citroën (PSA) groups, is caught up in the vast scandal of defective airbags from Takata, a Japanese supplier that disappeared with losses and fracas in 2017. At the same time, the company headed by Carlos Tavares must manage the difficulties surrounding its PureTech gasoline engine, which is said to have recurring problems likely to lead to its failure. Its turnover and net profit, down 14% and 48% respectively in the first half of the year compared to the same period in 2023, have earned it severe sanctions on the stock market. Faced with the sluggishness of its sales in the United States, the manufacturer has decided to cut several thousand jobs in one of its factories near Detroit, Michigan.
For Bernard Jullien, lecturer at the University of Bordeaux, the situation raises questions about the “long-term sustainability of the Tavares system”. This specialist in the automobile industry sees similarities between the decisions made by the American aircraft manufacturer Boeing, where the philosophy of the former star CEO of General Electric, Jack Welch, had largely infused, and the “treatment of extraordinary vigilance against any avoidable additional cost” applied to the entire automotive value chain by Stellantis “in order to satisfy shareholders”.
L’Express: The Franco-Italian-American car manufacturer Stellantis has found itself at the heart of several crises, the most serious of which are those of the defective Takata airbags and the PureTech gasoline engine. Do you think they have common roots, or is it a combination of unfortunate events?
Bernard Jullien: What is clear is that in the extension of the lean production [NDLR : une méthode de gestion “au plus juste”]the idea emerged that one should not hesitate to cut costs to the bone in order to maximize performance. But when the risk is revealed, the situation becomes very delicate to manage. In the case of Takata airbags, the decisions seem to have been made by Stellantis on fairly shaky grounds. The group did not take the necessary safeguards when choosing the supplier, nor did it manage the recall operations well enough once the problem was revealed. The case of PureTech is similar. PSA wanted, like all other manufacturers, gasoline engines with performances close to those of diesel and took small engines that it boosted. However, this mechanically generates higher risks of failure since these small engines must turn faster to meet the needs of the vehicle.
Each time, it is a question of moving quickly. Risks are being taken, as are recall campaigns. In such a context, it would be appropriate to have a little margin to deal with uncertainties. However, while it is impossible to attribute the choices of Takata airbags and the PureTech engine to Carlos Tavares, since they were made before he arrived at PSA in 2014, the decisions taken since then, this assumed behavior aimed at reaching the limits of the system, have contributed to further weakening the Stellantis structure. This treatment of extraordinary vigilance against any avoidable additional cost, or stinginess, at work at Stellantis and which applies to employees, suppliers and distributors in order to satisfy shareholders, is singularly similar to Boeing-style arbitrations.
How is the case of Stellantis likely to be similar to that of the American aircraft manufacturer, whose serious safety and quality problems were revealed by two fatal accidents in 2018 and 2019?
The merger between PSA and Fiat-Chrysler Automobiles was apparently conditioned by the acceptance of an extremely tough shareholders’ pact, similar to the one that the former CEO of Fiat, Sergio Marchionne, had made with the Agnelli family. [NDLR : les héritiers du fondateur de Fiat, dont le petit-fils John Elkann est président de Stellantis]. Carlos Tavares agreed to pay them handsomely if they would let him build the group he dreamed of. Which explains why he came to adopt Sergio Marchionne’s philosophy. For the latter, the automobile industry had to meet the profitability standards of other industries. R&D spending [NDRL : recherche et développement] were excessive in his eyes and he considered it a culpable weakness not to make all the possible savings. This led FCA’s engineering to fall into a state of fairly great disrepair before the merger.
The high unsustainability in the way FCA operated was very similar to that of Boeing: the American brands Chrysler or Dodge were bled dry, because nothing was spent on them. Fiat had little more than the 500 left in its catalog. On electrification, FCA was helpless. Stellantis solved part of the problem because there were some very nice leftovers at Peugeot. But since then, Carlos Tavares has not stopped saying that engineering costs too much in Europe, that those in the United States do better with less. My fear is that they will no longer be able to offer products at the expected level of quality. The drop in R&D spending per car is becoming worrying, the pooling between brands goes very far, to the point that one wonders whether the models will be distinguished from one brand to another. The long-term sustainability of the Tavares system is not self-evident.
The gradual replacement of engineers by financial profiles in Boeing’s management bodies is presented as one of the reasons for the drifts within the company. This is a major difference with Stellantis, since Carlos Tavares is himself an engineer…
What I perceive from the situation is that Carlos Tavares has long been an engineer concerned with technical and industrial performance. When he arrived at PSA, he introduced the economic culture and project management that he knew from his experience at Renault to ensure the survival of the company. It was, it seems to me, very adapted to the problems of PSA at the time. The counterpart to the creation of this very large group that he dreamed of, Stellantis, consisted of this agreement with the shareholders, who made the merger between PSA and FCA conditional on the achievement of financial results that constrained him very heavily. This is how he gradually drifted towards the religion of Sergio Marchionne.
I am not sure that the idea that performance is only achieved through weakening, that this philosophy halfway between Jack Welch and Charles Darwin, is the right management recipe for the automobile industry. The case of Toyota, whose purchasing practices, for example, rarely put suppliers into competition, tends to demonstrate that working together is at least as good a driver of performance as systematic competition. As we saw at Boeing, the reasoning works in the short term. But over a series of X planes or cars, it is not certain that the sum of costs and benefits is favorable.
Stellantis’ results, both in terms of sales and margins, have been exceptional so far…
The enchanted parenthesis associated with Covid and the semiconductor crisis has effectively masked the problem, but the return to normal that the automotive industry is experiencing in Europe this year is seriously damaging the Stellantis myth. The “pricing power” strategy [NDLR : la capacité à augmenter les prix sans perdre de clients] becomes much more difficult to maintain in the long term. The drop in profitability that the group is currently experiencing will very likely affect other manufacturers in the future. They will all suffer. This should be an opportunity to ask what the normal level of profit is in the sector, knowing that the automotive system as a whole remains very tight, with strong technical and regulatory constraints and low margins. It would probably be necessary to assume that we promise less to avoid making mistakes, especially in a period of transition.
That’s to say ?
In a transition phase between thermal and electric like the one the automobile industry is going through, it does not make sense to promise shareholders high dividends. In fact, when the European Union made its announcements on the electrification of the vehicle fleet, profit warnings multiplied among manufacturers. And then, Covid came to open this golden parenthesis where we forgot this reality when it was obvious that there would be a time when the structurally overcapacity nature of the automobile industry would reappear. But the belief in the ability to have lasting “pricing power” was surprisingly powerful.
Could other manufacturers encounter the same difficulties as Stellantis?
All manufacturers are caught up in the urgency of banning combustion engines in Europe in 2035. And in many cases, the question of the sustainability of industrial choices arises. Thus, neither Stellantis nor Renault have redeployed their engineering on competitive small electric cars while they were by far the best placed in the European automotive landscape to develop such products, knowing that this is the type of vehicle that the market is calling for.
Stellantis now finds itself having to seek an off-the-shelf solution through its partnership with the Chinese company Leapmotor, which poses a problem for its long-term competitiveness. Renault wanted to enter into a project to design an electric city car with Volkswagen. Faced with its refusal, it also wants to mobilize the “Chinese ecosystem”. This is not neutral either.
The same goes for batteries: all manufacturers have realised the mistake of betting on NMC technology and are now moving towards LFP, but in an emergency, they are doing so by rushing to the first Chinese or Korean supplier that comes along! The time for industry in transition is not or should not be that of financial markets. But it happens too often that long-term industrial and commercial choices are hampered by the systematic desire to do things quickly and cheaply.
Stellantis plans to cut nearly 2,500 jobs at one of its U.S. plants as sales in the country plummet. Should we fear further massive layoffs within the company, including in Europe?
There is significant overcapacity in Europe and it is unlikely to be resolved. The automotive market may never return to its 2019 levels and Chinese competitors are arriving. The major clean-up that we are already seeing among equipment manufacturers will affect manufacturers. At best, it will result in site transformations, such as that of the Renault plant in Flins, and at worst, in closures, if a shock to demand occurs.
In the case of Stellantis, it was quite clear that the promise not to sacrifice brands or factories, made when Stellantis was born, was only binding on those who wanted to believe it. Many brands within the group, whether Lancia, Alfa Romeo, DS and even Citroën, remain very fragile. The return to normal that Stellantis is undergoing could imply a questioning of this promise.
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