When Fiat Chrysler Automobiles NV and French automaker Groupe PSA merge on Jan. 16 to become Stellantis NV, the new transnational automaker's priorities will be to advance a robust electrification strategy, right-size product development operations and chart a path forward in China, the world's largest auto market.
Shareholders of both companies on Monday overwhelmingly voted in favor of the combination. As the world's fourth-largest automaker by volume, Stellantis aims to combine the profit machines of Jeep SUVs and Ram pickups in North America with the hefty margins delivered by PSA — the maker of Peugeot and Citroën in France, Opel in Germany and Vauxhall in Britain.
But industry analysts warn that Stellantis will be carrying excess plant capacity and more employees, especially in Europe, compared to its rivals. Still, executives say the transatlantic giant will possess the scale to invest and compete long-term in the historic transition toward autonomous, connected and electrified vehicles.
"What we have in front of us, of course, is a significant challenge," PSA CEO Carlos Tavares, who will lead the combined entity, said Monday during one of the shareholders' meetings. "This is a challenge, which consists of protecting the freedom of movement for our citizens, offering them that freedom of movement, a mobility that is safe, affordable, and clean. ... As a consequence because of the side effects, this will ensure the long-lasting survival of our companies."
Such a combination was needed for the sustainable future of Fiat Chrysler, its late CEO, Sergio Marchionne, long argued. His successor, Mike Manley, channeled that rationale to once again pair the Auburn Hills-based maker of Chrysler, Dodge, Jeep and Ram vehicles in a transatlantic agreement — the fourth attempt in less than three decades.
The 1998 marriage with Mercedes-Benz parent Daimler-Benz AG ended in divorce after failing to achieve the promised cost savings when the Germans wouldn't share parts. The partnership between Fiat SpA and Chrysler took the eponymous Italian brand global and moved the American side out of its 2009 bankruptcy and into a present where it reports one of the largest operating margins in the industry. And an initial effort to tie-up with Renault SA in 2019 was run off the road by the French government's meddling.
"Stellantis is a union of two like-minded partners to build something unique, something great by providing our customers with distinctive, safe, convenient, innovative and sustainable vehicles and mobility services," said FCA chairman John Elkann, scion of Fiat's controlling Agnelli family, who will continue his role as chairman of the combined company.
The transaction is a 50-50 all-stock merger. With more than 99% support, both companies' shareholders approved the resolution to unite. For each share of PSA, investors will receive 1.742 shares in FCA stock.
Stellantis will be domiciled in Amsterdam, but retain major operations in Michigan, Italy and France. Shares will begin trading in Milan and Paris starting Jan. 18 and on the New York Stock Exchange on Jan. 19 due to Martin Luther King Jr. Day. A special cash distribution of $3.6 billion, or $2.26 per share, will go to FCA shareholders on Jan. 15 prior to the merger's closure.
The French will have the governing advantage. PSA appointed six of the 11 board members, including Tavares. FCA CEO Mike Manley will lead Stellantis' operations in North and South America, but will not sit on the combined company's board.
"I think it will be much different," Carla Bailo, CEO of the Center for Automotive Research in Ann Arbor, said of the merger compared to failed attempts in the past. "Both have been through good and bad. With their knowledge, I don't think they will repeat those past mistakes. You just have to keep the benefit for the entire company always in your mind. It's not my way because I'm used to it, it's this way because it's the best way for the company."
That mindset will be needed to achieve the $5.9 billion in annual cost savings the companies are anticipating, Bailo said. They, however, repeatedly have insisted there will be no plant closures as a result of the merger — a promise that may prove difficult to keep in a hyper-competitive industry generally looking to fatten its margins in the traditional vehicle business to fund next-generation ventures.
Stellantis will have roughly 400,000 employees to produce 8.7 million vehicles annually. By comparison, General Motors Co. employs 180,000 people to make 8.4 million units.
Expect job cuts perhaps in excess of 10,000, according to the Center for Automotive Research at the University of Duisburg-Essen in Germany. Most will come from overlaps at design and engineering facilities in Auburn Hills, Paris, Rüsselsheim, Germany, and Turin, Italy. Executives have said just two platforms — a vehicle's underpinnings and powertrain — will support two-thirds of total volume.
Seventy-five percent of cost savings is expected to come from that platform convergence, manufacturing processes, combining research efforts and bulk purchasing, Manley said. The remainder will come from the integration of marketing and sales and redundancies in logistics, supply chain and quality.
The right-sizing efforts likely will begin in Europe, a competitive and stagnant market where FCA has been losing money and where Italian plants are running under capacity.
"They will close something of this," Ferdinand Dudenhöffer, a professor of automotive economics at the German research center, said of Stellantis' operations. "They have too many overcapacities. We don't see a strong European car market in the next five years. In the next five years, there will be big cost reductions."
Tavares has a reputation for being frugal and a cost-cutter. A native of Portugal who speaks four languages, he turned around the struggling PSA when he took over in 2014. After PSA acquired in 2017 GM's Opel and Vauxhall brands that for decades had lost money in Europe, they were profitable again under Tavares in just 18 months. That effort included nearly 8,000 job cuts through early retirements and voluntary layoffs.
Industry observers and those who have worked with him say he is demanding and expects results yet is fair. He holds a Darwinian mindset that only the strongest automakers will survive the transition toward self-driving and electrified vehicles.
"I think they have the right leader at the helm to be able to get the organization aligned, make clear the priorities and ensure the sustainability for the future," said Bailo, who worked with Tavares for almost eight years while they both were at Nissan Motor Co. Ltd.
FCA and PSA in September increased their projected cost savings and now expect to close in roughly two weeks. Those are positive signs for their cooperation, said Philippe Houchois, a London-based analyst with investment firm Jefferies Group LLC: "Tavares already is basically determined to exceed whatever he tells you whether it is more profit or better deadlines."
Americans' demand for larger SUVs and pickups may prove to be job security for U.S. employees as there is less overlap with Europe where smaller vehicles are popular.
"That's the profit engine right now," Bailo said, referring to FCA in Auburn Hills. "You don't want to kill the profit engine."
Electric-skateboard vehicle platforms that offer less complexity than internal combustion engines, though, will make it easier to condense engineering efforts and merely trade out the top hat of the vehicles to match the style and taste of Stellantis' 14 brands — the most of any major automaker, she said.
Investors will want to see a clearer plan for electrification like what GM and Ford Motor Co. have rolled out, Houchois said, especially with respect to FCA's brands, which have almost no available all-electric vehicles. Tavares has said all of PSA's products will have electric variants by 2025 and offers 16 electric models currently.
Electric vehicles still represent a small part of the market, but will become increasingly important as emissions and fuel-economy standards become stricter, especially in Europe and China.
"The important thing is they have the technology in-house," said Stephanie Brinley, an analyst with financial services company IHS Markit Ltd. "The new Stellantis has some of the technology and will be able to share it a little bit more effectively across its brands."
EVs, other technologies and the luxury segment especially are important in China, the world's largest autos market, where neither the FCA nor the PSA halves of Stellantis are well-positioned. The combined company should rid itself of its excess capacity that is five times more than it sees in demand, consolidate its joint ventures to one from three, and focus on the premium market for its Jeeps and other brands there, said Michael Dunne, CEO of Hong Kong-based consulting firm ZoZo Go LLC.
"The market and profits are not what they used to be in terms of growth," added Dunne, a former GM executive in the Asia-Pacific region. "Small, focused, lean, quick and premium is the way forward, not mass market."
Tavares believes a global automaker must have a presence in China and has said that will be a priority the team will examine following the merger's closure.
"They have preserved themselves for the next five years," Dudenhöffer said. "There will be reduced costs in Europe and the U.S., and they'll be in a better position due to economies of scale. After five years, though, the Koreans and the Chinese will be coming into Europe and the U.S. In five to 10 years, the scales will come from China and the Asia market."
Tavares he is up for the challenge: "We are ready to implement these synergies. We are ready to start the next chapter of our two companies. These two companies have carried out their strategic plans in the past. These two companies have no problem with execution."
