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.”
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.
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.