Stellantis: Fourth-Largest Automaker Emerges

Fiat Chrysler Automobiles (FCA) and Peugeot S.A. Stellantis N.V. (Groupe PSA) have set a date for Stellantis NV to be formally born. On Jan. 16, 2021, Stellantis' common shares will begin trading on the Milan and Paris stock exchanges and on Jan. 18 on the New York Stock Exchange. Stellantis will be the fourth-largest automaker by volume and third by revenue with a total of 16 vehicle brands.

"We are also fast approaching the day when we will begin our next chapter with the creation of Stellantis," wrote FCA's Chairman John Elkann to FCA employees in late December. Elkann will remain Chairman of the Board of Directors, which includes Robert Peugeot as Vice Chairman. Carlos Tavares, current Chairman of Groupe PSA, will lead the new venture as CEO of Stellantis.

On Dec. 18, 2019, both companies announced their intention to "build a new world leader in the automotive sector." The process advanced in 2020. After receiving final regulatory clearances from the European Commission and the European Central Bank, shareholders from both companies approved the creation of Stellantis with more than 99 percent of the votes cast in favor, said both companies in a statement.

"Both companies are in good financial shape. This is not a merger in a crisis mode. This is a merger of two highly matured companies that understand that despite the fact of that they are in good health right now, the challenges ahead are very significant and they will be in a better shape coming together than on a standalone basis," said Carlos Tavares during an interview with CNBC.

Stellantis’ Capabilities

FCA's board report regarding the merger states that both companies expect synergies to be achieved in four areas: first, technology, platforms and products; second, purchasing and procurement savings to lower product costs; third, selling, general and administrative expenses (SG&A) and fourth, the optimization of other functions including logistics, combined expenditures, supply chain, quality and aftermarket operations.

"The annual industrial synergies are expected to exceed €5 billion (US$6.15 billion), with approximately 80 percent of synergies to be achieved after four years from the closing of the deal. Approximately 75 percent of synergies are expected to arise from technology, platform and product convergences and procurement savings, approximately 7 percent from SG&A and the remaining from all other functions," said FCA board on the report.

Groupe PSA's managing board report for shareholders states that among the reasons to merge are "substantial geographic balance in addition to product diversity." PSA’s solid position in Europe and FCA's leadership in North America will provide balanced revenues for Stellantis. Based on combined 2019 revenues, excluding Faurecia, 46 percent of revenues will come from the Europe, Middle East, Africa and Eurasia region, while 44 percent of revenue is expected to come from North America.

Moreover, both groups will combine their R&D footprint. Stellantis will have 51 R&D centers and 33,000 employees in that area. "Stellantis will have a robust base to foster innovation and further drive development of transformational capabilities in new energy vehicles, sustainable mobility, autonomous driving and connectivity, allowing it to effectively compete against other automakers," Groupe PSA's report states.

Stellantis will be a company incorporated under Dutch law and will be registered in the Netherlands, where it will have its headquarters. The new automotive group will have major operation centers in France, Italy and the US. The new group will have 16 auto brands, which include Groupe PSA's Peugeot, Citroen, DS and Opel Vauxhall, along with FCA's Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional, Jeep, Lancia, Masserati, Mopar, RAM and SRT. The merger was also under the condition that Groupe PSA will take all necessary steps so Stellantis does not take over Faurecia.

Stellantis in the Americas

PSA does not have a strong presence in the Americas. In its 3Q20 report, PSA reported that Latin America represented 4.3 percent of its total sales worldwide, while Europe represented 84.2 percent. In the case of FCA, the group regained its leadership in sales in Latin America in 2Q20. In 3Q20, North America represented 57.90 percent of FCA’s total sales and Latin America accounted for 13.55 percent for a total of 71.45 percent of total sales coming from the Americas.

In Mexico, FCA remains a leader in exports and production. In 2019, FCA was Mexico's third-largest producer and second-largest exporter of light vehicles, positions that have remained unchanged through 2020. In terms of sales, what are to be Stellantis' brands accounted for total sales of 51,073 from January to November 2020, which represented a 6 percent market share in that period. It is important to consider that AMDA forecast less than 1 million vehicle sales by the end of 2020.

Taking into account 44 percent of Stellantis’ revenue is expected to come from North America alone, Mexico will play a central role in the company’s strategy in terms of vehicle production, given FCA’s strong footprint in the country. Moreover, should synergies in R&D and product development evolve quickly, the country has the potential to attract new projects as well.