Written by Thembani Magazi – January 28, 2020
Reviewed by Asaf Kedem
It’s official! PSA Group and Fiat Chrysler Automobiles (FCA) have merged to form Stellantis. This new company brings together 14 well-known vehicle brands across the world. The deal was in the works since late 2019 and automotive enthusiasts the world over have been waiting to see what the new decade has in store for the nascent Stellantis brand. “Stellantis” comes from the latin verb stello: the name of the brand translates to "of (he/it that) brightens with stars". We have witnessed something truly amazing in the automotive world, the birth of a new titan in automotive production.
With this 2021 merger, the brands under one joint umbrella are: Chrysler, Dodge, Jeep, Ram, Fiat, Alfa Romeo, Abarth, Lancia, and Maserati—thanks to FCA—as well as Citroën, DS, Opel, Peugeot, and Vauxhall—thanks to PSA. This makes the brand the fourth largest automaker in the world by volume, and the third largest automaker in the world by sales revenue trailing just behind Volkswagen and Toyota.
Survival of the fittest
The merger is seen as a survival tactic for both PSA and FCA as revenues had suffered in recent years. One way to move things in a positive direction for both groups is electrification, which they have set out to do. Currently, Stellantis has 29 electrified vehicles on the market—including both fully electric and hybrid vehicles—and will offer 39 by the end of 2021. 2025 will see Stellantis produce "one electrified model for every newly launched global model," the company said at a press conference earlier this month.
Not only that, but Stellantis has a lot of ground to cover in making sure it is fulfilling its enormous capacity. Both PSA and FCA operate at just 8 percent of their capacity in the Asia-Pacific region, according to consultancy LMC. Most of that capacity is in China, a market of 21 million cars a year, and analysts said the merger is the best chance for a turnaround in China.
The problem of Overcapacity
It's not just China where the two companies have a capacity problem. Stellantis could shut down factories around the world, with a combined capacity sufficient to build Ford's entire annual output—and still boost production with its remaining plants, according to the consultancy’s estimates. While the new company has said it will not be looking to close any factories, its network could build as many as 7 million more vehicles than it currently sells, according to LMC (Automotive data provider). Both companies ran at less than half their capacity during 2020, a year in which the pandemic undoubtedly left its mark, but even in a successful year such as 2016, LMC data show the combined group would have had overcapacity of nearly 4 million vehicles. Neither automaker would comment on LMC's figures. PSA and FCA have said Stellantis can cut its combined annual costs by 5 billion euros without any plant closures. Nevertheless, analysts say overcapacity could force some to shut, with factories outside the company's home countries—such as Vauxhall's Ellesmere Port plant in England or Fiat's Kragujevac plant in Serbia—at a higher risk.
Auto Trendy’s take:
Stellantis C.E.O. Carlos Tavares takes charge of the new Stellantis: he will quickly need to implement strategies to revive the automakers' fortunes in China, rationalize a sprawling global empire, and address massive overcapacity. The problems of both PSA and FCA will not simply dissolve now that the pair exists as one entity. PSA and FCA are having a rough time in China against both international and local rivals, and Tavares himself has acknowledged that is not a good position for the company to be in. The Chinese market is a critical one and addressing these issues in production ought to take the forefront of the corporate strategy if Stellantis is to remain viable. We at Automotive Trendy will be watching this new venture to bring you further insights.