The CEO of Stellantis, Carlos Tavares, is gone. Booted out of the company he helped create. Stellantis is the automotive entity that includes PSA Groupe (French auto brands Peugeot and Citroën) and Fiat Chrysler. Fiat Chrysler is the entity created after Chrysler filed for Chapter 11 in 2009. Fiat, under the leadership of Sergio Marchionne, took over the troubled Chrysler brand in 2014.
Many people will not remember the Chrysler brand. Always the “third” of the three US automakers. And, those who do remember are probably still feeling the kitsch of the 1974 Corinthian Leather commercial for the Chrysler Cordoba featuring Ricardo Montalbán. (PS: there is no such thing as Corinthian Leather. It was a marketing idea created by Chrysler’s ad agency.) Ricardo Montalbán, a TV and film actor, became even more recognizable with his role in TV’s Fantasy island (1977-1984).
Anyway.
Business reports indicate that the dismissal of Carlos Tavares is apparently due to at least two extremely troublesome tendencies. One is Mr. Tavares’ arrogance. Two is Mr. Tavares’ focus on “in-the-year-for-the year,” short-term shareholder satisfaction, i.e., financial engineering.
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One might think that with Ram trucks, Jeeps and muscle cars, as well as Fiats and some fancy Italian super-snazzy vehicles, Stellantis would be a strong automotive contender. The fact is that Chrysler, a large, profitable part of Stellantis, Walter Chrysler’s business founded in 1925, has been a fragile company for a very long time. This fragility stems from the numerous hook-ups, mergers and divorces since at least the 1970s.
A little history.
In the 1970’s, Chrysler bought a 15% stake in Japanese automotive brand Mitsubishi. This alliance eventually became Diamond Star Motors. Chrysler rebranded the Mitsubishi vehicles with Chrysler names. The Mitsubishi Montero, a small 4-wheel drive SUV, became the Dodge Raider. In 1991, the Mitsubishi-Chrysler alliance was disbanded
In the 1980s, Lee Iacocca led Chrysler. Mr. Iacocca had previously been CEO of Ford. After a “disagreement” with Ford, Mr. Iacocca was summarily dismissed. Mr. Iacocca was immediately hired by Chrysler. His departure for Chrysler was not only a godsend for the Chrysler brand, but one of the best oft-repeated business-success stories ever.
In 1976, when Mr. Iacocca left Ford for Chrysler, several other Ford executives went with him. At a Chrysler strategic meeting, Mr. Iacocca stated that Chrysler needed some good news that could only be satisfied by a new vehicle introduction. Did Chrysler have anything in the pipeline? No, was the answer. But, one ex-Ford executive reminded Mr. Iacocca of the vehicle they worked on at Ford that had been thrown out by the company. This vehicle would have replaced the station wagon. At struggling Chrysler, Mr. Iacocca gave the new vehicle project a green light. The vehicle was the minivan. The rise of the minivan was swift. The image of flower-children and stoners in a hand-painted, Day-Glo VW bus lost to the image of mothers and kids, soccer games, mall excursions, car-pooling and suburban bliss.
Additionally, for those who have grown up with the variety of automotive safety criteria for vehicles, there was a time when cars did not even have seat belts. Mr. Iacocca made Chrysler the first automotive company to base an ad campaign on seat belts in Chrysler cars, upping Chrysler’s image of safety. The campaign used real people who had survived a crash in a Chrysler vehicle wearing a seatbelt.
During the 1980s, Mr. Iacocca revived the Chrysler brand.
In 1998, the unlikeliest merger occurred when Mercedes Benz bought Chrysler. This merger created Daimler-Chrysler. Basically doomed from the start, Daimler-Chrysler is a case history in how not to manage a merger. And, a great example of how a merger for a merger’s sake can become a nightmare. The cultural mismatch between German automotive management and American automotive management was just one of the hurdles for success. By 2007, the divorce was final. One of the casualties was the Plymouth brand, RIP 2001.
Through all of these changes, the Chrysler brand took a beating. For years, Chrysler brands shared platforms. Cost-saving measures but brand suicide measures. Take the Neon, a very cute small car branded Dodge, Plymouth and Chrysler, with no other relevant differentiation. Everyone thought the Neon was smiling at them. Sales were good but the brands suffered. (The same thing happened over at Ford with Ford and Mercury. The only difference between a Ford and its sibling Mercury were the grilles. And, the model names. The Mercury Mountaineer was a Ford Explorer with a fancy grille. Grille management is not brand management. RIP 2011: Mercury brand.)
A brand and its portfolio can only handle so much self-inflicted pain. Brands gain power by proper brand management. The financial crisis of 2008 was another turning point for Chrysler. The Chrysler brand resuscitation came with the leadership of Sergio Marchionne. Mr. Marchionne has already revitalized Fiat as its CEO. He created the Fiat-Chrysler alliance with the bankrupt Chrysler, merging the two brands in 2014.
Forward to Carlos Tavares who succeeded Mr. Marchionne.
Mr. Tavares’ Tendencies for Trouble.
Carlos Tavares is a car guy. He started at Renault and helped Carlos Ghosn with the 1999 Nissan turnaround. (At Renault, Carlos Ghosn was named “Le Cost Cutter. We learn that Mr. Tavares learned his lessons well.) Mr. Tavares returned to Renault. Then, he became CEO of PSA Groupe in 2014. At Fiat Chrysler, Mr. Tavares masterminded the merger of PSA Groupe with Fiat Chrysler.
Things went well until things did not go well. Mr. Tavares’ strategy apparently did not generate positive performance, while aggravating customers. Mr. Tavares’ style apparently poisoned the well with suppliers and dealers.
In a remarkable and insightful CNBC article, the reporting attributes the problems plaguing Stellantis, in large part, outcomes of Mr. Tavares’ leadership.
First is arrogance.
Success is everybody’s aim; no one aims to lose. However, for some, nothing fuels arrogance more than success. It may foster an environment of “I can do no wrong.” Arrogance ignores the customer-focused mind-set, “we will promise and deliver what customers want.” Arrogance revolves around the belief that we know what is best, we will manufacture what we deem to be best while selling at prices that we deem best for our margins.
The alliance of Fiat Chrysler with PSA Groupe was a huge coup. Mr. Tavares became an automotive hero.
In 1991, Pepsi CEO Wayne D. Calloway stated that arrogance was the single biggest reason people did not succeed at Pepsi. He said, “There is nothing wrong with having confidence, but arrogance is something else. Arrogance is the illegitimate child of confidence and pride. Arrogance is the idea that not only can you never miss [shooting] a duck, but no one else can ever hit one.” He said, “Arrogance is an insurmountable roadblock to success in a business where the ‘team’ is what counts. The flipside of arrogance is teamwork, the ability to shine, to star, while working within the group.”
Apparently, Warren Buffet agrees, as he stated in one of Berkshire Hathaway’s annual reports. Mr. Buffet said, “In any area of life, arrogance is a damaging character defect, undermining interpersonal relationships, but in business it’s potentially lethal. A CEO who is arrogant will ignore the advice of colleagues who may have a far better insight into risks threatening the company. That leads to bad decision-making, low corporate morale and loss of contact between senior management and employees. It destroys the culture of collegiality, of shared opinions and objectives that is crucial to the effective functioning of any organization. Once a CEO becomes isolated in a boardroom he has lost his ability to lead the company effectively.”
According to CNBC reporting, this arrogance was part of the downfall of Carlos Tavares. Stellantis is a global powerhouse; a huge achievement. Apparently, arrogance was the coup de grâce.
Second is focusing on short-term growth without a focus on short-term and long-term growth.
The truth is that businesses need short-term and long term growth. Without the short-term growth, there is no long-term growth. Short-term alone and long-term alone are paths to financial fracture.
Mr. Tavares said that his goal was “… to make Stellantis the most efficient automaker with regard to capital spending.” Based on its interviews, CNBC indicates that Mr. Tavares has a short-term monetary focus. Mr. Tavares focused on “near-term costs and profits to the detriment of business and the company’s products.” Mr. Tavares was an “… avid proponent of cost-cutting, margins and synergies” – this may have been part of his own “downfall.”
In the first three years of Mr. Tavares’ tenure, he laid off more than 40,000 workers. After years of Chrysler mergers and divorces, there may be a point at which there is nothing left to cut. Mr. Tavares’ ways to eliminate expenses may have gone too far, even to the point of ridicule.
For example, CNBC refers to an article in Financial Times. At a UK factory, the coffee machine for a group of visiting guests had to be transported from another factory over 100 miles away because staff at the host factory were not allowed to buy a coffee machine of their own.
Financial engineering is bad for brands and for stakeholders. But, great for shareholders and CEO’s. Reporting indicates that while cutting costs, “Stellantis made $20 billion in profits in 2023 and gave $7 billion to shareholders. Mr. Tavares ‘earned’ almost $40 million in 2023.”
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All this money spread around to a precious few while statements from Stellantis employees reported in a Substack article indicate that, similar to Boeing, Stellantis product came off of the manufacturing line with defects – defects that went unremedied. One employee stated, “ … we probably sent out a lot of garbage because we refused to stop the line and fix certain things that needed to be addressed.” Customers noticed the poor quality of new vehicles.
Financial engineering, the catchall phrase for extreme cost cutting including job losses, debt accumulation, share buy-backs, increased dividends, forced spinoffs and money siphoned into the pockets of investors rather than invested into businesses, can damage brands.
Financial engineers see strong brand equity as an opportunity to extract value rather than extend brand strength. This is a form of brand extortion. Investments in continuous improvement and innovation are decreased as dividends and share buybacks are increased. Monies are siphoned from R&D, customer insight research, service and support and marketing resources.
A 2014 Harvard Business Review article labeled CEOs who favor increased dividends and buybacks value extractors as opposed to value creators. The writer pointed out that an obsessive focus on shareholder value alone makes executives and shareholders happy, but it is a system that shortchanges, overall, sustainable business prosperity. When CEOs focus on stock buybacks and annual dividend increases, the company’s brands have empty pipelines. The HBR article stated that when CEOs default to buybacks and dividends, “trillions of dollars that could have been spent on innovation and job creation in the US economy over the past three decades have been used for what is effectively stock-price manipulation.”
Here is a brand and economic truth: you cannot cost-cut your way to enduring profitable growth. Mr. Tavares’ approach seems to have been excessive. Not only were new cars riddled with problems, Mr. Tavares raised the price of Jeep into the stratosphere. Last year, The Economist called out Stellantis for thinking that Jeep could compete at the premium off-road vehicle level owned by Range Rover, Mercedes and Lexus. Apparently, the 2023 prices for Jeeps were $6000 above the industry average.
Other cuts were the elimination of the renowned, motor-head-adored, Hemi engine, “delays in new products, cutting low margin vehicles without any replacements available and waging battles over costs with dealers, suppliers and the UAW.”
And, then there is the muscle car. A real piece of Americana. Right up there with a Harley-Davidson. Think Vanishing Point (1971) or Dirty Mary, Crazy Larry (1974). Mr. Tavares decided to go electric. The Dodge Challenger and Dodge Charger with gasoline-powered engines will be phased out. Automotive reporting states that Dodge did release the Demon 170, a street-legal muscle car, but Stellantis will only manufacture 3,300 of the Demon 170. The Dodge Charger Daytona, the Daytona Scat Pack and Charger Daytona R/T are electric only.
Arrogance and short-termism are brand and business destroyers. If this were the Navy, we would be speaking of a destroyer as that large ship that escorts a fleet with the goal of defending that fleet from harm. With arrogance and short-termism, the “harm” to be protective from is having low margins, providing low shareholder returns, accepting ideas and recommendations from stakeholders and putting money into R&D. All of this financial finagling leads to low corporate/employee morale, questionable product quality, bad decision-making and brand decline.
Properly managing brands means managing for continuing success. It means always taking the brand to the next level. There is no inevitable brand life cycle if you are willing to invest in the brand with new ideas and strategies. Brands can live forever if they are properly managed.
Stellantis has some storied brands in its portfolio. These brands must be nurtured, grown and prized. There are loyal customers who love Stellantis brands. Of course, these are challenging economic times where companies need well-thought-out strategies that generate brand value. Mr. Tavares seems to have opted for quantity of growth rather than quality of growth. Let’s hope the new Stellantis management team focuses on both quality and quantity of growth for enduring profitable growth.
Contributed to Branding Strategy Insider by: Joan Kiddon, Partner, The Blake Project, Author of The Paradox Planet: Creating Brand Experiences For The Age Of I
At The Blake Project, we help clients worldwide, in all stages of development, define or redefine and articulate what makes them competitive at critical moments of change. Please email us to learn how we can help you compete differently.
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