In a decade, his relentless methods have propelled him to the automotive pantheon. Coup after coup, Carlos Tavares has risen to the head of an empire, Stellantis. Kicked out of the Renault group in 2013 by the overly flamboyant Carlos Ghosn – whose thirst for grandeur was then poorly suited to the pretensions of his heir – the Portuguese turned around a moribund Peugeot Citroën in record time. Then the German brand Opel, bought from General Motors.
And now, in 2021, the Centrale graduate is marrying PSA to the Italian-American Fiat Chrysler. 14 brands – many of which are similar and several of which are failing –, a plethora of factory networks, dissimilar cultures, an uneven conversion to electric: the operation promises to be delicate. Especially since the birth of the world’s fourth largest manufacturer, named Stellantis in reference to the Latin stellar, “sowing stars”, is celebrated in the middle of the Covid period. But, against all expectations, the pandemic opens an enchanted parenthesis for the automobile industry. Demand is picking up again. Supply less so: component shortages are slowing down the resumption of production.
Recalls and drop in results
No matter. For car manufacturers, the situation is ideal to make full use of their pricing power, namely the ability to raise prices with the guarantee that customers will not flee. Carlos Tavares wields the concept with as much ardor as he cuts costs, he who has long described himself as a “performance psychopath”. In addition to the obvious synergies and economies of scale, voluntary departure plans are commonplace, suppliers are under strong pressure to lower their prices, many functions are outsourced, activities are delocalized… For three years, the combo pricing power and cost reductions are causing sparks in the results. In 2023, Stellantis announces a new record net profit of 18 billion euros, while its operating margin has fluctuated between 12 and 13% since its creation, a level worthy of premium manufacturers.
However, for several months, clouds have been gathering in the starry sky of Stellantis. With a delay, the group is feeling the pinch of the Takata scandal. Disappeared in 2017, this Japanese equipment manufacturer marketed airbags containing ammonium nitrate for years. However, when exposed to humidity and heat for a long time, this cheap chemical component becomes unstable and potentially explosive. Enough to transform driver protection equipment into real time bombs. A disastrous choice that gave rise to a vast recall campaign in the United States about ten years ago. And which is forcing Stellantis to carry out mass recalls in turn, while exposing it to class actions. Another mechanical problem: some of its PureTech gasoline engines, which are said to have recurring problems that could even cause them to break.
At the same time, the group’s magnificent results are melting like snow in the sun. In the first half of 2024, its turnover contracted by 14%, while its net profit fell by 48%. At 10%, the operating margin now threatens to fall below the double-digit mark. Unthinkable at Stellantis, which promises to “redouble its efforts to remain at the forefront of [son] industry” in a response to L’Express. On the stock market, its share price, which was around 27 euros in March, has plunged below 15 euros. “It is an understatement to say that the results of the first half of the year were disappointing,” Carlos Tavares said during a videoconference with analysts in July.
How far can cost cutting go?
In an act of contrition entirely addressed to the financial markets, he meticulously listed the three reasons for this downturn: the costly launch of 20 new vehicles worldwide, operational difficulties and excessive inventories in the United States. Aware of the weight of the North American market – one of the most lucrative – on his business, the manager cut short his vacation to go to his bedside, while the American union UAW is threatening a strike after the announcement of the postponement of planned investments in a Stellantis plant in Illinois. “The first-half results reflect a moment of operational transition in a generally demanding context,” the group added.
There is no question, however, of giving up on the promise to pay out at least 7.7 billion euros in dividends and share buybacks this year. Faced with competition that is pushing prices down everywhere, the company will work “even harder to reduce costs to create the margins that [lui] will allow a redistribution “The speed and scale with which we are moving to the countries with the lowest costs gives us a competitive advantage, even if it means we are unpopular,” he said at the end of July.
But, little by little, doubt is creeping in even among the hushed world of financial analysts: can the manufacturer, whose sales are declining, really push this almost obsessive quest for savings any further? “Stellantis is very efficient on costs. It has prioritized productivity to the detriment of competitiveness, which aims for a balance between cost control and product attractiveness. However, if we cut further without stabilizing sales levels, it’s a race to the bottom,” notes Philippe Houchois of the American bank Jefferies. The analyst also questions the consequences of “the conflictual environment between Stellantis and suppliers, dealers, governments and unions” while pointing out “the fatigue of the teams, who worked very hard during Covid and to carry out the merger.”
“Stellantis must reinvest in its products”
At the University of Bordeaux, lecturer Bernard Jullien makes little secret of his fears. “The drop in R&D spending per car is becoming worrying, the pooling between brands is going very far, to the point that we wonder whether we will distinguish models from one brand to another. The long-term sustainability of the Tavares system is not self-evident,” warns this automobile expert. And to point out similarities between the methods of the new automobile giant and those of… the American aircraft manufacturer Boeing: “the extraordinary vigilance against any avoidable additional cost, the stinginess at work at Stellantis, and which applies to employees, suppliers and distributors in order to satisfy shareholders, singularly resembles Boeing-style arbitrations”, whose failings in terms of quality and safety have been widely documented since the fatal accidents of two 737 Max which caused the death of 346 people in 2018 and 2019.
A rapprochement that Bertrand Rakoto, based in Detroit in the United States, director at the Ducker Carlisle firm, does not deny. “Stellantis could find itself in a similar situation to that of Boeing and other companies that have prioritized financial results by transferring jobs to regions with less experience. Cost cutting has its limits, otherwise it leads to destroying the skills and value of the company, which ends up no longer knowing how to develop products with the expected level of quality,” believes the automotive expert.
However, while he agrees that “vehicle recall procedures often come in batches, Stellantis’ policy of always going for the cheapest has finally become visible, either because recalls have been delayed and end up piling up, or because the obsession with price is at the expense of quality,” he explains. And he concludes: “Stellantis must reinvest in its products.” It is up to Carlos Tavares, a racing enthusiast, to negotiate the turn to avoid going off the road.
.