2019 ALL STAR | INDUSTRY LEADER OF THE YEAR
In 2017, Carlos Tavares was CEO of a French automaker that sold barely more than 3 million cars annually and was just three years removed from near-bankruptcy.
Today, Tavares is poised to become the leader of the world’s fourth-largest car company, if the proposed PSA Group merger with Fiat Chrysler Automobiles comes to fruition. The combined company would produce more than 8 million vehicles a year under more than a dozen brands, challenge Volkswagen for dominance in Europe and have global revenue of about $200 billion.
In the interim, the Portugal-born Tavares picked off General Motors’ European operations, which were losing hundreds of millions of dollars annually, and within 18 months, Opel was turning a profit. He has led PSA Group to record margins even as global car production and sales have dipped.
His recipe? A relentless focus on profits and efficiency as well as creating a work environment that lets employees unleash their full potential. And a willingness to be humble: “The CEO is only a tool to make things happen,” the 61-year-old Tavares, Automotive News’ 2019 Industry Leader of the Year, said in an interview this month at PSA headquarters outside Paris, soon after the FCA proposal was announced. “And the toolbox is very, very big.”
Action, not words
At a time when many in the industry are talking about the need to consolidate, but actual deals have been scarce, Tavares has forged ahead. In Opel, he found an additional 1 million vehicles a year on which to spread out development costs, increase platform utilization, multiply the effects of r&d and drive savings on purchasing. An FCA merger could amortize those costs across more than 8 million cars, with Tavares and Fiat boss John Elkann promising an initial $3.7 billion in synergies — without closing any plants.
If that seems like a tall order, Tavares can point to revivals at both PSA and Opel.
“The task would be huge, the politics messy and lots would probably go wrong on the way,” Bernstein analyst Max Warburton said in a note. “But Tavares and [his] team have a track record of turnarounds, have been talking about a deal for years and would bring huge energy to the task.”
In the proposed merged company, Tavares would not only be the CEO — he would be the 11th vote on a board that would be made up of five directors appointed by PSA and five by FCA, making him the de facto leader. (FCA Chairman Elkann will hold that title for the whole company, not just FCA, and would be one of the 10 board members in addition to Tavares.) And he would be granted a five-year term from the closing date.
Tavares said that far from being a king, he would be making sure “the new company is moving forward, in terms of sustainability, technology investment, profitability and work-life balance.”
“Success for all of us would be that after a few years, nobody remembers where the board members come from,” he added.
Tavares said that the conditions for a merger could not be better. “These are two great companies, looking at public numbers on both sides,” he said. “Neither is in a crisis.
“Can we do more if we are together and create more synergies?” he asked. “The answer is yes, and that’s why we are planning to come together.”
Tavares says that the recovery of PSA gave him confidence to make a bid for Opel — and likewise, that the lessons learned from reviving Opel and integrating 1 million extra vehicles into PSA’s annual production will help with an FCA merger.
Still, he said, “There is no way we will get that job done if one guy comes in and says, ‘Let me teach you.’ I have nothing to teach and everything to learn.”
Racing through the ranks
Energy and focus have been Tavares’ trademarks. Born in Portugal, he went to France in 1975 to finish his education, graduating with an engineering degree from the prestigious Ecole Centrale in Paris. He joined Renault as a test-drive engineer in 1981 and at the same time indulged his passion for motorsports. In 2004, a few years after Renault acquired a controlling stake in Nissan, Tavares moved to the Japanese side of the alliance, and by 2005, he was an executive vice president for the North and South American operations. Four years later, he became president of Nissan North America, and in 2011, he was appointed No. 2 at Renault Group to Carlos Ghosn.
But after a short honeymoon, relations between the “Two Carloses,” as the French press dubbed them, turned cool. The catalyst was a 2013 interview with Bloomberg in which Tavares admitted that he probably wouldn’t succeed Ghosn, who was just 59 at the time, at Renault and stated his desire to run his own car company, mentioning General Motors by name. “Anyone who is passionate about the car industry comes to the conclusion that there is a point where you have the energy and appetite for a No. 1 position,” he said.
Perhaps sensing disloyalty, Ghosn facilitated that desire by pushing out Tavares, who landed at crosstown rival PSA Group just a few months later. But it was a job few probably coveted: The maker of Peugeot and Citroen was losing an estimated $250 million per month, and the Peugeot family had just agreed to relinquish control after nearly 200 years, selling 14 percent stakes in the company each to the French government and to Chinese automaker Dongfeng.
Tavares quickly announced a recovery plan called “Back in the Race,” a nod to his motorsports hobby, that laid out his foundational vision for success in the auto industry: Improve pricing by raising quality and eliminating unprofitable sales channels; enact a global “core model strategy” that focuses on only the most profitable segments and shared platforms; and enhance competitiveness by lowering wage costs, raising factory utilization rates and trimming manufacturing costs per vehicle.
He promised positive cash flow by 2016, a 2 percent operating margin by 2018 and €2 billion of free cash flow from 2016 to 2018 — because “cash is king,” as he’s often said.
Those targets were reached well ahead of schedule as PSA recorded a $1.32 billion profit in 2015, a 5 percent margin. Tavares was hailed as a “miracle worker,” although some analysts said they thought his targets were too conservative — “underpromise and overdeliver” has been a mild complaint levied against him. Others noted that the turnaround was accompanied by a surging European automotive market. The proof, they said, would come when Tavares was faced with a recession.
New markets to conquer
A recession hasn’t yet come, but global auto sales and production are slowing, especially in China — the one area where Tavares has not been able to fulfill his promises. China was once PSA’s largest market outside Europe. But sales there have slipped to barely 15 percent of what they were in 2015, when they topped 700,000.
“China is probably the most delicate region we have today,” he said last year, vowing to fix problems in operations, which he admitted ran deep. “Caution and optimism must go hand in hand here.” FCA, and especially Jeep, could be a tool to tackle China.
That slump and the purchase of Opel have led PSA to be heavily weighted toward Europe, with 80 percent of revenue coming from the region.
In response, Tavares has tried to expand elsewhere, but South America has proved fitful with the collapse of Argentina’s economy, and PSA lost around 400,000 annual sales when the U.S. backed out of the Iran nuclear pact and reimposed sanctions on companies doing business there.
And one other tantalizing goal remains: the U.S. market, the world’s second largest, with its rich trove of SUV and pickup buyers. That would be addressed in a merger with FCA — and its 10.6 percent margins and estimated 13.1 percent market share.