Stellantis seems to be doing better than other auto companies – Il Post

There is one company that is coping better than the others with the crisis that has severely affected the car sector since the beginning of the pandemic: it is Stellantis, which was born only in January 2021 from fusion of PSA, the French company better known as Peugeot Citroën, and FCA, the Italian-American company born in turn from the merger of FIAT and Chrysler.

Since 2020, the automotive sector has been in a deep crisis, both due to a significant drop in sales and the many difficulties that companies encounter in producing the vehicles themselves, due to the lack of chips and the increases in the prices of materials and energy . Many market analysts believe that Stellantis has managed to adapt better to this difficult situation because the merger and the new management have made it possible to make production more efficient and significantly reduce costs, even if this has led to a staff cut in its various production plants, with a consequent social cost.

Stellantis has only existed for two years but has a long history, being made up of historic car companies such as the Italian FIAT, the French Peugeot and the American Chrysler. Its resilience today is considered by many to be a surprising result, especially in light of the fact that only twenty years ago, in the early 2000s, FIAT was going through its most difficult moment and was losing around 5 million euros a day. Since then it has transformed itself from an inefficient and state-subsidized company to a solid, more profitable and international market player, first as FCA (born from the merger of FIAT and Chrysler) and then as part of the Stellantis group.

Today it is the world’s fourth largest car manufacturer, with 400,000 employees and over 50 factories around the world. It is considered one of the most profitable companies in the industry, although the companies that originally formed it, PSA and FCA, weren’t so profitable. The company recorded in 2021, i.e. its first year of life, a net profit of 13.4 billion euros, three times what the two companies earned separately in 2020, compared with a total turnover from the sales of 152 billion euros, 14 percent more than the previous year. The 2022 accounts will be published at the end of February.

Despite being a multinational by now, Stellantis still has a considerable economic value for Italy: it has huge factories such as those in Mirafiori, Melfi and Pomigliano, and it is estimated that the company’s impact on the Italian economy is between 1 and 3 percent of GDP. According to Istat, the car manufacturing sector in Italy employs 160,000 people; if spin-offs are also considered, the majority depend on Stellantis.

The crisis of the sector today
Since the beginning of the pandemic, the motor vehicle sector (which includes both cars and commercial vehicles) has entered a very serious crisis. According to data from OICA, the international organization that collects and processes information on the production and sales of motor vehicles, after a 5 percent drop already recorded in 2019, world production in the auto sector suffered in 2020, due to the impact of the lockdowns and restrictions, a drop of 16 percent, thus returning to 2010 levels. Sales in turn decreased by 12 percent.

In 2021 things did not improve and the restrictions due to the pandemic added other elements of difficulty: it has become very difficult to find some important components for the production of vehicles, such as chipand great discontinuities have been created in the so-called global value chains, i.e. all that set of international processes that make it possible for the production of goods to be divided into various parts of the world. Production had a slight improvement of 3 percent compared to 2020 but was still 13 percent lower than in 2019. The same goes for sales.

There is no global data yet for 2022, but the global trade crisis and raw material shortages dragged on for the first half of the year, then started to ease. To these problems were added, however, the significant increases in raw materials and energy, which made production even more difficult and expensive.

On the demand side, things did not go better. The large drop in consumption in 2020 has never been compensated, above all due to the climate of great uncertainty which has never actually gone away: consumers have often postponed decisions on important purchases such as buying a car; inflation leaves little room for spending for many families.

The financial statements of the main companies for 2022 are not yet available, but the perception and concerns of analysts about the sustainability of their business can be seen from the stock market prices: in 2022 some of the largest European automotive companies lost on average 22 percent of their stock market value.

The resilience of Stellantis
In all of this, many analysts and experts agree that Stellantis fared a little better. Not so much because it has sold more vehicles than other companies. Indeed, it sold fewer than the average: in the European Union there were 4.1 percent fewer registrations in 2022 and there were almost 14 percent fewer those involving Stellantis vehicles.

According to many, what made the difference was the direction of the managing director Carlos Tavares, a manager considered very capable within the sector and famous for being able to quickly put the accounts of the large car companies in order: he arrived from the group Renault ten years ago, first saved Peugeot Citroën from bankruptcy, then in 2017 took over Opel – also part of the Stellantis group – managing to make it a profitable company in one year, after two decades of loss.

Various observers believe that Stellantis has also been subjected to what is now known as “Tavares method”, which consists in making processes much more efficient and greatly reducing costs. It must be said that the merger between PSA and FCA alone has already produced 3.2 billion of so-called “synergies”, i.e. savings made possible by the union of two companies that can now share, for example, plants, workers and so on. Street.

Carlos Tavares has reduced costs through innovative managerial choices, such as putting his factories in competition, thus trying to push them to become more efficient, and cutting stocks to the bare minimum so as not to occupy too much warehouse space, thus risking generating additional expenses , even at the cost of delaying deliveries, as has actually been the case for several months.

Competition between factories across the group also highlighted Tavares’ strategy to cut jobs in high-cost countries. The reduction in costs therefore also involved a reduction in the number of employees, with a consequent social cost: in the plants in France, second Le Monde, we went from 59,000 industrial workers in 2013 to just over 40,000 today and last year a plan was launched to encourage the resignation of 2,600 employees; the same in Italy, where there was a difficult union negotiation for the resignation of 1,820 employees; in December it was announced the closure of a US plant in Illinois, where more than 1,300 employees worked.

The reduction in operating costs has allowed the company to better adapt to the significant drop in demand in recent years and to the enormous difficulties that the whole sector is experiencing due to problems in the production chains.

At the beginning of the year, just speaking of how the company intends to continue to face this difficult period, Tavares specifically spoke of «unpopular choices», such as possible closures or downsizing of some plants, but excluding further job cuts. The unpopular choices and cost reductions are also functional to the future development of the company and the success of its investments in electric cars: «if we don’t optimize the cost structure, we cannot absorb the additional costs of electrification. If we don’t absorb costs, consumer prices go up and the market shrinks, and if that happens, fewer factories are needed. It’s a vicious circle, a dog chasing its tail.”

It is precisely the objective of reducing costs that originally led to the merger between PSA and FCA. The decision arose from a need for consolidation that is very present in the automotive sector: over the years many companies in the sector have expanded through mergers or acquisitions, to respond to a market that is increasingly international and requires huge investments, such as those needed for the transition to electric cars.

– Read also: The merger between FCA and PSA

By now all analysts agree in saying that the future of mass mobility are electric cars, and even if self-driving cars are unattainable for now, the IT and technological aspect is as important as the mechanical one in the production process of a car.

When it comes to technology, however, both the French and Italian branches of Stellantis (especially the Italian one) are far behind, not only against innovative rivals such as Tesla but also against Volkswagen and other traditional automakers. Neither, for example, has an architecture designed exclusively for an electric car, partly due to the distrust that both Tavares and Sergio Marchionne (historic CEO of FCA who died in 2018) have always nurtured for this technology. One of the reasons for the union is therefore to have enough resources and technical capabilities to develop new generation cars.

– Read also: The great transformation of automotive companies