Looking Ahead of the Merger of a French-Italian-American Automaker

This is a dramatic move in the automotive industry, even surprising a bit: The French PSA group, Peugeot & Citroën, is merging with the Italian-American Fiat Chrysler Automobile (FCA) company. The combined carmaker named Stellantis is about to be the fourth largest carmaker in the world (NBC News, Paul Eisenstein, 4 January 2021). But this alliance may not be easy to keep up and hold together. The brands included in the merger have not been among the stronger car brands in the market (except possibly in their home countries of origin); some car brands just lingered, other brands suffered more serious blows or difficulties over the last two decades to the extent of having to be rescued. While their fortunes improved somewhat in recent years, the task of pushing most or all of the brands forward is likely to demand high levels of effort, resources, and ingenuity.

Stellantis includes more brands than the four leading names stated above, which the partnering companies were best known for or identified with. If we look more closely, there also are German and British representatives in the newly-integrated automaker. The PSA group brings of course Peugeot and Citroën, yet it also arrives with the German Opel and British Vauxhall (both acquired from General Motors). FCA entails clearly the Italian Fiat and the American Chrysler, as well as Dodge and Jeep from the USA, and the Italian sportive brands Alfa Romeo, Maserati, and Lancia. Altogether, Stellantis offers 15 car brands.

Those familiar car brands are mature and veteran, and each comes with its own identity, meaning, and a selection of models (e.g., arranged in ranges according to size and form, purpose, and style). Some of the car brands are more specialised, others are more general, made to serve the needs and preferences of a larger variety of consumer segments. Each has developed its own strategy, and may have its own emphasis and orientation.

Peugeot, for instance, is stronger in performance and comfort, whereas Citroën is more invested in technology and innovativeness. Peugeot offers model series 108, 208, 308, and 508 in increasing order of size and features; at Citroën one would find, similarly, the model series C1, C3, C4, and C5. Chrysler launched its large SUV and minivan car models (Pacifica, Voyager) in aim to regain popularity particularly in the US. Following the increasing interest of drivers in larger cars, Peugeot introduced its ‘car expansions’ 2008, 3008, and 5008 SUV models, while Citroën added the C3 and C5 Aircross SUV versions. Fiat has always been known for its useful and friendly cars, apparently without too high pretensions. Fiat has put the spotlight in recent years on its Fiat 500 car range in different forms (including the retro Fiat 500 Cinquecento city car, and the larger 500X and 500L cross or SUV-like versions). Fiat also offers Tipo (family car) and Panda (Punto and Bravo/Brava are no longer mentioned either in the global official website or in the Italian website of Fiat). Alfa Romeo, Maserati and Lancia probably need no further explanation. Considering the variation across all brands in the portfolio of Stellantis, it appears rather clear that this mix of brands and models can be difficult to rule and manage under one roof.

The automotive domain is going through two major transformations, simultaneously: a shift from fuel-based vehicles to electric vehicles (EV) based on batteries, and a digital transformation towards autonomous (‘driverless”) cars, utilising cameras, other sensors, and AI technologies. A critical challenge for Stellantis will be to catch up in creating the new types of vehicles, with advanced genuine systems, to remain competitive. Neither PSA nor FCA have been in the frontline of developing the new technologies and implementing them in their vehicles; however, they are making progress and already have hybrid (fuel + battery) and all-electric cars, as well as cars installed with smart driving aids, digital touch-screen displays and controls. For example, Peugeot offers the new 308 and 508 Hybrid Plug-In cars as well as e-208 and e-2008 electric cars; Citroën offers both fuel and electric versions of C4, and Hybrid C5; the New Fiat 500 is electric; and Chrysler Pacifica has a Hybrid version. The New Fiat 500 is also defined as an autonomous car at Level 2, meaning human driving assisted by digital smart aids (sensors, alerts, and some automatic corrections). That seems to describe the level of AI-based driving available in cars of other brands (e.g., Peugeot and Chrysler). It should be noted that the industry as a whole is in intermediary stages with respect to marketing cars that are fully reliant on batteries and autonomous cars (ranging between levels 2 and 4 which is more AI-reliant).

A key to the success of Stellantis is expected to be its ability to build on synergies between their car brands from PSA and FCA, such as in technological skills, design, and manufacturing capabilities. For many years car makers succeeded by taking advantage of synergies while exchanging knowledge and sharing engines or pars of them between models of competing car brands. Chrysler and Peugeot have had ties between them stretching for decades prior to the current merger, and analysts believe plenty of synergies also are at the basis of this deal (Eisenstein, NBC News). Synergies may be important enablers of filling gaps in line-up of models and in marketing to different geographic regions. Chrysler, in fact, already benefitted from the skills in car technologies and manufacturing of professionals from Fiat who came to America to help up their new peers at Chrysler following the earlier merger with Fiat in 2011 (*). Stellantis will likely have to make new uses of synergies within the integrated company, and direct resources, knowledge and skills to leap frog the advancement of their brands in the areas of electric cars as well as autonomous cars.

During the previous decade consumers-drivers have been shifting their preference in favour of larger vehicles such as SUVs. This trend is eminent in the United States, especially since 2014, after prices of fuel (gasoline) started to fall. Americans are less fond of small and even medium family cars (hatchback or sedan) — which are still popular in Europe and other regions — and are more inclined to purchase the larger and more massive vehicles (SUVs, minivans, crossovers). This situation has become particularly troublesome for European carmakers that started to design and manufacture vehicles in this form. Still, this trend is probably mostly responsible for the disappointing re-entry of Fiat in the American market (first time since leaving it in 1983); sales dropped from a peak of 46K cars (0.29% market share) in 2014 to 15K (0.09% MS) in 2018. FCA was thriving primarily thanks to the SUVs of Jeep and RAM’s trucks; the subcompact SUV-type Fiat 500X is considered too small and crowded for Americans for this class of cars (USA Today, Nathan Bomey, 23 May 2019). The French brands Peugeot and Citroën are absent from the US market; so the question now is if Stellantis is able to pave the way for increasing the presence of these European brands in the US.

Consumers have had misgivings over the years about the quality of cars of Fiat, Peugeot and Citroën; Chrysler has also been considered inferior to other American brands (e.g., Ford) and to Asian brands. In different surveys or reviews in the last ten years (e.g., Consumer Reports, JD Power) Fiat and Chrysler repeatedly suffered of low perceived quality, falling to the bottom of ranking tables in the US. Consumers often imply quality from reliability or dependability (i.e., occurrence of malfunctions and failures of car parts & systems, frequency in which drivers need to bring their car to the garage), attributes on which Fiat and Chrysler have fallen behind. For some consumers and brands (e.g., Alfa Romeo), styling can more than compensate for lower reliability (Detroit Free Press, Eric D. Lawrence, 29 March 2019). Other important criteria in making decisions about cars include safety, performance on the road, and durability (essentially cars can hold for twenty years, but practically drivers consider how many years they may keep the car before having to spend too much money on repairs, usually sooner than ten years).

Peugeot and Citroën remain well regarded in their home country, France. In a recent survey of Peugeot owners by YouGov, 79% of respondents agreed that the vehicle from Peugeot is well suited to the family; the brand’s cars are perceived highly in quality and reliability; 31% stay loyal to cars made in their country (Automotiveworld.com, Sept. 2020). Between 2005 and 2012 Citroën was regarded highly on brand Esteem & Knowledge, but after 2007 it experienced a decline in Differentiation. Landor agency helped PSA resolve the problem by 2012 by focusing on two dimensions: (1) new emphasis on technology and innovativeness (‘Créative technologie’); and (2) redesign and launch of more showrooms (‘Branded showroom experience’)(case study, Landor agency for consulting and strategic brand design). European brands like Peugeot, Citroën, Fiat and Opel/Vauxhall remain in demand in regions such as Europe, Middle East, and Latin America. Another critical challenger for Stellantis, therefore, is to improve the image and positioning of these brands in different countries globally, and expand their presence on the roads.

The credit for the Fiat-Chrysler merger belongs primarily to the CEO of Fiat at the time and subsequently of FCA, the late Sergio Marchionne (1952-2018), in virtue of his strong and inspiring leadership. Following his achievements in revamping Fiat, Marchionne was called to help Chrysler out after the financial crisis of 2008 which badly hurt the automotive industry in the US. After tough negotiations between Marchionne and Obama’s administration (on commitment from the former and funding by the latter), Fiat effectively took over Chrysler and rescued the brand as part of FCA. Marchionne believed that production teams should be less dependent on industrial engineers, and instead he aimed at training workers to use analytic tools to better understand the processes and make decisions in building cars (e.g., efficiency and ergonomics). One of his important moves also was to flatten the organisation and ‘lift-up’ people who were ‘buried’ in lower layers of the company. He argued that people in the company should have the ability to use the space given them intelligently, not to abuse the freedom; “It’s to remain absolutely focused on the objective but not to define the method of execution” (*). Marchionne continued seeking to enlarge the automaker and consolidate with yet other carmakers in the industry, before passing away unexpectedly. The succeeding CEO of FCA Michael Manley attempted negotiations, which collapsed, with Renault-Nissan for a merger deal, before negotiating with PSA the current merger that came through.

At PSA, CEO (and chairman) Carlos Tavares succeeded in bringing the company out of financial troubles (being in losses for several years), and largely saving the company. After accomplishing that mission, whereby PSA has also refreshed its lines of models, Tavares led the acquisition and rescue of Opel / Vauxhall and integrating their brands and vehicles within PSA. Now much will depend on the leadership of Tavares as the first CEO of Stellantis to create a unified carmaker with a consistent strategy and a coherent road map for its car brands and models. There seems to be an expectation that he will build on his own expertise and enthusiasm about cars, yet perhaps adopt also from the spirit and vision of late Marchionne.

Stellantis should develop a truly integrative offering of brands and models that is more than just a ‘portfolio’. For example, brands should complement each other, targeting the needs and expectations of different types of segments, and reducing overlaps and redundancies of models across brands. The carmaker may differentiate between its brands, for example, on the basis of size and purpose of car models, types of technologies installed and their level of advancement and innovativeness, visual design and style. Notwithstanding, Stellantis may also distinguish between brands with regard to personality characteristics and emotional associations that bear on the depth and strength of connections drivers and passengers develop with the brands. Additionally, the company may consider whether it is worthwhile to push each brand to be global or to dedicate brands to specific target regions where they will be more likely to gain popularity, and aim to market dominance.

The merger and integration of PSA and FCA into the new international automaker Stellantis suggests significant opportunities for uniting resources, human skills and talents to improve considerably the state and prospects of its various brands. Nevertheless, given the previous difficulties several of these brands have endured, it depends greatly on how its assets are allocated and utilised in order to really put the brands on a new path forward.

Ron Ventura, Ph.D. (Marketing)

Note:

[*] Power Steering: How the Boss of Fiat and Chrysler Is Driving an Auto-Industry Revival; Bill Saporito and Auburn Hills, Time (Europe Edition), 19 December 2011.

One thought on “Looking Ahead of the Merger of a French-Italian-American Automaker

  1. Danny Rainer

    As usual, highly informative, cogent and well-argued analysis by Dr. Ventura.
    I understand this mega-merger has the potential of cutting costs, but what from the consumer stance, what does it entail in terms of competition between brands?

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