Stellantis synergies will 'shield' Fiat's Italian factories, Tavares says

MILAN -- Stellantis CEO Carlos Tavares sought to reassure Italian workers that no plants would be closed as a consequence of the merger of Fiat Chrysler Automobiles and PSA Group, saying the combined strength of the two companies would act as a "shield" against job losses.

Tavares spoke by video conference with representatives of the largest Italian metalworkers' unions on Wednesday, two days after Stellantis shares began trading.

Michele de Palma of the FIOM metalworkers union, who was in the meeting, said that Tavares told them he would "involve the unions" in preparing the Stellantis business plan. 

FCA had been struggling with overcapacity at its European factories, with utilization rates at 55 percent, according to LMC Automotive, the Detroit News reported. In comparison, PSA factories run at 68 percent utilization, LMC said. 

In a news conference on Tuesday, Tavares, the former CEO of PSA, said Stellantis would create billions of savings in R&D, purchasing and manufacturing, giving the group the ability to launch "sister cars" to PSA models at relatively low additional cost. 

Stellantis is expected to generate at least 5 billion euros ($6 billion) in annual synergies, Tavares has said, a central rationale for the merger. Such synergies would act as a shield to protect and increase production levels, rather than drive job cuts, he said. 

Tavares pointed to the new-generation Opel Corsa small hatchback as a potential blueprint for future Fiat models. The Corsa was developed in less than two years on the same CMP platform as the Peugeot 208 after PSA bought Opel/Vauxhall from GM in 2017. 

Savings from such technology sharing could allow Stellantis to build vehicles that in the past might not have been approved because they would have been unprofitable, he said.

As an example of this strategy, FCA announced in late December that it will build three new small models for Alfa Romeo, Fiat and Jeep in Poland on the CMP platform, although that agreement was reached separately from the merger project.

Tavares said that looking at job cuts as the primary way to reduce costs did not reflect the complexity of the automotive industry. He said that labor costs represented only 10 percent of the manufacturing cost of a car, while purchased components represented 80 percent. 

"When you are talking about jobs,” he said, "you talk of that 10 percent, but there are so many other things to do on the remaining 90 percent to improve profitability before having to cut jobs."

But he emphasized that "needs to be supported with a reasonable level of efficiency and effectiveness of the Italian plants." To this end, he said Stellantis would put in place internal benchmarking against PSA Group plants to help improve quality and lower costs. 

Tavares is a strong advocate for such benchmarking. When he was serving as chief operating officer at Renault Group in the early 2010s, he used alliance partner Nissan’s European plants, mainly Sunderland in the UK, as the benchmark for Renault plants in Europe. 

PSA factories were also used as a benchmark for Opel/Vauxhall plants in recent years.  

PSA’s acquisition of Opel has been seen as a double-edged sword in Italy. The integration of Opel was accomplished without plant closures or forced layoffs – but the workforce has been cut by about 20 percent, from 38,000 in 2017 to approximately 30,000, through attrition, early retirement, voluntary buyouts and the sale of some engineering activities.

The workforce reduction, mainly affecting white-collar positions such as engineering, came with new product allocations to Opel plants and guarantees on the remaining jobs.

According to PSA’s annual reports, 2.2 billion euros were spent on "employee departure plans" in the 2017-2019 period, most of which was used to finance the Opel workforce reduction.

FCA does not separately report the cost of incentives for employee separation and early retirement. Temporary layoffs, which were and are widely used in Italy to keep plants open despite very low utilization rate, are mainly financed by the Italian government.

Luca Ciferri contributed to this report