A new powerful player has appeared on the global automotive market the alliance of the Italian-American FCA (Fiat Chrysler Automobiles) and the French Groupe PSA Peugeot Societe Anonyme). The merged concern was named Stellantis, which means shining with the stars and became the fourth largest automaker in the world by volume. Only Toyota, Renault-Nissan-Mitsubishi, and Volkswagen are larger than him. However, the newly minted auto giant still has to solve a whole heap of problems from overcapacity to cannibalism between the numerous brands of the concern. A burning star or a fast flash in the sky – in the material Lenta.ru.
Beaten Beaten Lucky
The Stellaris concern emerged shortly after the FCA and PSA overcame the crises. Moreover, many of the brands that are part of Stellantis are still in dire straits. For example, Fiat, which by the end of the 1990s accumulated almost all Italian car brands Alfa Romeo, Ferrari, Lancia, and Maserati. He also owned several dormant brands (those that were produced, but died, if desired, they can be revived). However, all this time, the company’s share has been declining – if in the late 1980s Fiat occupied almost 14 percent of the European market, then in 2002 the share fell to 8 percent, and in 2004 – to 5.6 percent. The concern released several not very successful cars and was on the verge of bankruptcy.
The salvation of the concern was associated with a possible merger with General Motors (GM) – the Americans bought 20 percent of Fiat in 2000. But in the end, we managed to get by on our own. The savior was Sergio Marchionne, who came to the concern in 2003 as an independent member of the board of directors. A year later, he became CEO of Fiat. He broke the alliance with GM, insisted on investing in new models, and the concern came to the crisis of 2008 on the rise.
What could not be said, for example, about Chrysler? The alliance with Daimler owner of Mercedes-Benz turned out to be a failure. If at the time of the merger in 1997, Chrysler was confidently on its feet, then, having regained independence in 2007, it found itself in a difficult situation. The global crisis exacerbated the situation, and negotiations with the administration of then US President Barack Obama ended in nothing. In 2009, Chrysler began bankruptcy proceedings.
But Marchionne believed that the company could be saved and insisted on buying it. Thus, Fiat acquired 20 percent of Chrysler and by 2012 its share had grown to 58.6 percent. In 2014, the restructuring was completed as a result of which the FCA concern appeared, which existed until the merger with Groupe PSA. Marchionne’s ambitious plans to rehabilitate the concern allowed Jeep, Ram Trucks, and Maserati to renew sales records, but Alfa Romeo, Lancia, and Chrysler remained distressed assets.
As for the French concern, its crisis peaked in 2012-2014. The aftermath of the Great Recession and several unsuccessful models led the PSA to seek new investors. In February 2012, an alliance with GM was announced – the Americans got 7 percent of the shares, making them the second-largest shareholder in PSA. A year later, the Americans sold their stake to an investment company from India. And in 2014, the French government and Chinese industrial giant Dongfeng each acquired 14 percent of PSA shares in exchange for an investment of 800 million euros. As a result, the share of the Peugeot family dropped from 25.4 percent to 14 percent.
The resulting investment and a cost-cutting plan led by new CEO Carlos Tavares helped make PSA profitable again in 2015. Two years later, the concern was bought from GM the Opel brand, and the British Vauxhall, under which German cars are sold in the UK. Thus, PSA has united five brands: Peugeot, Citroen, Opel, Vauxhall, and DS.
Looking For An Ally
Despite the way out of the critical situation, both concerns did not solve all their problems. Chrysler has pulled out of many export markets and only sells two models in the US. Lancia is represented only in Italy and only in one model. Alfa Romeo’s ambitious revival plan has stalled – demand in the US is declining and the brand’s sales in Europe are even worse than Lancia’s. PSA managed to return Opel to profit for the first time since 1999 in just a year, but the company faces a costly transition from GM platforms to new ones. And sales of the premium DS brand, a sub-brand of Citroen, collapsed.
At the same time, both FCA and PSA need to invest a lot of money in the development of electromobility technologies. It is impossible to postpone any longer – some EU countries have already announced plans to ban the operation of cars with internal combustion engines (ICE) in large cities, while others have embarked on a complete ban on sales of cars with internal combustion engines in the long term.
At the same time, new platforms for electric vehicles need to be developed and factories re-equipped. All this requires a lot of investment. More and more companies are joining forces to create electric vehicles. In November 2019, it became known about the partnership between Toyota and the Chinese concern BYD; in September 2020, GM and Honda signed an agreement of intent.
The first rumors that FCA was looking for a partner and that Groupe PSA could become it appeared in March 2019, but the management of the Italian-American concern denied them. The next candidate in May of the same year was the Renault-Nissan-Mitsubishi alliance, which owns Lada. However, in June it was announced that the deal would not take place. The FCA blamed the French authorities for its disruption. Then, in Turin, they returned to the idea of an alliance with PSA, and by the end of 2019, the parties agreed in principle.
According to the idea, FCA and PSA were supposed to be equal partners, but in reality, this is not entirely true. The document, which FCA sent to its shareholders, contains the details of the transaction. In particular, a clear description of the structure by the international financial reporting standard IFRS 3. The PSA concern is called the acquirer and the acquiree is FCA. Also, Stellantis was headed by the CEO of the French concern Carlos Tavares, while FCA representative John Elkan took over as chairman of the board. Finally, there are 11 seats on the Stellantis board of directors. Six will go to the PSA and five to the FCA.
The Stellaris has a combined annual production of about 8.7 million vehicles, but the majority is provided by FCA. At the same time, both concerns ended the last years with a profit. Following the results of the pre-coronavirus 2019, FCA’s revenue amounted to 108.18 billion euros, and net profit – 2.7 billion euros. PSA finished the year with revenues of 74.7 billion euros and a net profit of 3.58 billion euros. PSA’s annual report highlighted the role of cost-cutting in achieving these results. The merger with FCA should save even more money – about five billion euros by 2025. Stellaris intends to save money by reducing the number of platforms and engines that will be used by numerous brands of the concern, as well as through joint engineering and development of new models.
Despite the desire to save money, Stellantis will retain all 12 major brands (Alfa Romeo, Chrysler, Citroen, Dodge, DS, Fiat, Jeep, Lancia, Maserati, Opel, Peugeot, Ram, Vauxhall) and subsidiaries like Abarth and Fiat Professional, which deal with sports and commercial vehicles. Rumors about the imminent liquidation of the Chrysler and Lancia brands have not been confirmed, and the latter will be completely responsible for the premium segment along with Alfa Romeo and DS.
To avoid brand cannibalism, Stellantis wants to differentiate brands by niche and market. American brands must fight for overseas leadership, Fiat, Alfa Romeo in Italy, Citroen, DS and Peugeot in France and China, and Opel and Vauxhall in Germany and the UK. Moreover, the leaders of Stellantis promised that not one of the numerous factories of concern in 30 countries will be closed. The only exception due to the effects of Brexit would be the Vauxhall plant in Cheshire. However, this strategy raises questions, since several Stellantis plants are not operating at full capacity at once.
The stock market reacted positively to the merger. Stellaris shares were listed on stock exchanges in Milan and New York. In Milan, on the first day of trading, the concern’s shares rose by eight percent, and its capitalization amounted to 42 billion euros. In the short term, Stellantis will publish a detailed development strategy that will show exactly how it intends to achieve its goals. So far, it is only known about plans to release ten new electric vehicles by the end of the year, and by 2025 the auto giant will produce exclusively hybrids or electric vehicles.
The new concern’s strategy should also shed light on the place that Stellantis assigns to Russia. At the moment, the position of almost all brands of concern in the country is unenviable. Citroen and Peugeot, which once held significant market shares, sell several thousand cars a year. Jeep is hovering around the 1,000-vehicle mark. The results of the rest of the brands are even worse. The annual sales of Fiat and Opel are in the hundreds of cars (the latter even left the Russian market), and Chrysler – in dozens. Alfa Romeo, Dodge, and DS left the market altogether.
At the same time, the concern has a PSMA Rus plant in Kaluga. The share of Stellantis in it is 70 percent. The remaining 30 percent is owned by Mitsubishi. With a capacity of 125 thousand cars in 2019, the plant produced only 40 thousand cars, of which the vast majority were Japanese cars. Against the backdrop of cutting costs, the closure of the plant and the departure of some of the Stellantis brands would seem a logical step, but the top management of the concern promised to save the enterprises and jobs.
Stellaris will likely try to strengthen its position in Russia by localizing the production of more models. This will allow not only to increase the market share but also to load the plant in Kaluga. In July 2019, PSA signed a Special Investment Contract (SPIC) with the Ministry of Industry and Trade, under which the concern is obliged to increase investments in production in Russia. In particular, it was planned to launch the production of engines in Kaluga, launch the creation of new models and increase the localization of those already produced. But even in this case, gaining greatness in Russia Stellantis will be almost more difficult than in the whole world.