PARIS -- Carlos Tavares, the energetic executive who plans to fold General Motors’ European operations into France’s PSA Group, is a modest man despite his high ambitions.
Tavares spent the first 10 minutes of PSA’s 2016 financial results press conference here last month thanking everyone present.
The 58-year-old Portuguese engineer thanked financial analysts, media, employees, management board members, directors and unions for the support they have given since him he took over the struggling automaker in 2014.
Keeping a low and humble profile is typical of Tavares. His style is to be like an orchestra conductor who gets the best performance out of all the individual musicians, giving the same amount of attention to the first violin as he does the last drummer.
Tavares applied his gentle yet effective style in talks over four months to win support for his plan for PSA to acquire GM’s Opel/Vauxhall division. The deal was announced on Monday.
Tavares’ approach was to convince worried politicians and unions in Germany and the UK, where the bulk of Opel/Vauxhall employees are based, that he was not out to conquer but instead to help Opel by combining development efforts, boosting synergies and exploiting the appeal of German engineering.
“There is an opportunity to create a European car champion resulting from the combination of a French company and a German company with a strong UK brand,” Tavares said at PSA’s Feb. 23 results conference. A combined PSA-Opel could sell more than 5 million vehicles a year in the midterm and reach a profitability level close to PSA’s current target, which is a 6 percent margin.
“The value creation comes from the speed at which we would generate synergies, which would deliver Opel’s turnaround and at the same time improve the cost-competitiveness of PSA,” he said. “It’s a win-win for both companies, for Opel’s employees and for the countries related to these brands,” he said.
Tavares made a promise when he took over PSA three years ago: Let us fix the business, then we can look to forge partnerships that foster our growth. He has done the first part. PSA last month reported that recurring operating income climbed to 3.24 billion euros ($3.4 billion) in 2016 from 2.73 billion euros a year earlier on cost reductions. Automotive operating profit widened to 6 percent of sales from 5 percent. PSA generated 2.7 billion euros of operating free cash flow in 2016, raising its net automotive financial position to 6.81 billion euros at the end of December from 4.56 billion euros a year earlier.
The second part will come if Tavares successfully restructures Opel as he has done with PSA.
PSA will not convert Opel into a French brand, Tavares has said. Opel will remain a German company with its German management.
Tavares said he has “a high respect” for the work that Opel CEO Karl-Thomas Neumann and his team have done. Neumann brought Opel, a chronic money loser, to the brink of profitability last year, failing largely because of the unexpected fallout from the pound’s collapse in the wake of the UK’s vote to quit the European Union. Despite Neumann’s good work, "Opel needs help," Tavares said. "Making red ink for 10 years and burning 1 billion euros of cash every year is not going to last forever," he said, adding that PSA has the expertise to help Opel. “What we see today at Opel has a lot of similarities with what we were facing four years ago."
Tavares said PSA would not micromanage Opel. "The turnaround plan for Opel will be built by the Opel executives, the Opel people -- it will be their plan, not something coming from PSA. We will create the conditions for the plan to be built," he said. "I trust that with the appropriate guidance, the appropriate support, the appropriate benchmarks, there is no reason they can't do a good job."
When asked if he had promised anything in return for support from the British, French or German governments, Tavares said: "We are not in a give-and-take negotiation process. I apologize for being so plain, but we are just trying to help." Respecting existing labor agreements and obligations is not an issue, “because this is part of PSA’s DNA.”
Tavares spent 32 years at Renault and Nissan, at one time leading Nissan’s North American operations before rising to become a valued No. 2 to Renault-Nissan CEO Carlos Ghosn. Tavares stepped down as Renault’s chief operating officer on Aug. 29, 2013, two weeks after telling Bloomberg in an interview that he wanted to become CEO at an automaker.
He is just four years younger than Ghosn so Tavares, known as “the other Carlos,” needed to move to fulfill his dream. He quickly found it - without having to move out of Paris. By January 2014, he had joined archrival PSA, becoming CEO two months later.
PSA called Tavares to the helm of the company after the founding Peugeot family had to relinquish control when the French state and Chinese automaker Dongfeng Motor rescued the automaker, each buying 14 percent stakes. The Peugeot family, which founded the company in 1810 beginning with cast iron, adding bicycles in 1886 and finally cars in 1891 – saw their majority holding reduce to 14 percent stake.
Tavares is a firm believer in underpromising and overdelivering. That became evident after he took charge. His Back in the Race five-year plan gave his team targets that Tavares considered challenging, although many people outside the company said they were too conservative.
PSA easily surpassed those goals in two years and by spring 2016 Tavares launched a new plan.
Drawing on his passion for auto racing, Tavares chose Push to Pass as the name of his new plan. The term refers to a device on a racecar that provides the driver with the ability to boost power for short periods -- usually by pressing a button on the steering wheel -- to overtake a rival. That is exactly what Tavares plans to do after he and his team successfully met the objectives of his Back in the Race plan three years ahead of schedule.
Under the Back in the Race plan, PSA swung to a 1.2 billion euro ($1.32 billion) profit in 2015 after losing more than $8.79 billion from 2012 to 2014. Tavares has already lifted the bar in his new Push to Pass plan, pointing to an over 4.5 percent margin this year from a planned 4 percent and a surprising 6 percent already achieved last year.
Tavares’s obsession is to “become the world's most-efficient carmaker," and he now wants to add Opel and Vauxhall into his journey toward “operational excellence.”
Frugal and focused
One reason PSA has been able to smash through targets well ahead of schedule is because Tavares has no tolerance for waste. Under his guidance, PSA in two years reduced its production breakeven point to 1.6 million vehicles a year from 2.6 million. The CEO's commitment to frugality is still strong because he believes PSA's level of waste “is still very high."
His management style demands that staff are frugal and focused, avoiding any volume obsession. The fact that he called for over 5 million combined PSA-Opel sales in the near term from roughly 4.35 million the two companies separately reported last year was almost a surprise, because a constant in Tavares' plans at PSA was the lack of any volume target.
"Volume can be the enemy of value," he told Automotive News Europe last year. For him, growth is measured by revenue, by operating margin and by market and product coverage. "This industry has made many, many mistakes in recent years by always pushing volume," he said. "To me, performance matters more than size."
Tavares is a true team player, and his desk clearly shows it. When three years ago I asked him why he had only a plastic folder on his desk, he appeared almost embarrassed as he quickly moved the folder into a drawer. "I do not need papers," Tavares told me. "When I need data, I ask someone on my great team" for it. Then he usually asks the person to improve whatever data he has received, he said.
After his arrival at PSA, Tavares found a culture where few people thought about the big picture. "One of PSA's big limitations is that we have many silos, and we tend to work more on local objectives rather than corporate goals," he said. That is a key reason why Tavares will move as many as 700 of PSA's top executives into a single location in the outskirts of Paris toward the end of the year.
If you want to make the usually calm Tavares little bit aggressive, remind him of the discussion about his compensation package, which nearly doubled in 2015 to 5.24 million euros. Members of the French government, which helped to bail out PSA, said in March 2016 that it sent the wrong signals to the automaker's staff and the French people. Leftist French worker union CGT called his pay package “totally indecent.”
"First, it is the supervisory board that determined my objectives and my compensation, not me," Tavares said. "Second, there is a worldwide market for CEOs, just as there is a market for soccer players and Formula One drivers. I'm [paid] about one-third to half as much as my peers."
Car racing has been in Tavares’s blood since his childhood. At 14 he was already a voluntary race marshal at the Estoril race track in Portugal. In 1983 he began his racing career by driving in rallies and later moved to track races. He has entered over 500 car races in its career, of which over 150 were rallies. Tavares normally races 22 to 24 weekends a year, generally from March to October, while he spends autumn and winter weekends personally restoring his cars in his own small workshop in the outskirts of Paris.
Nowadays he drives in track races rather than rallies, as closed circuits are safer than public roads used by rallies. However, his last race was the Monte Carlo historic rally in February. He raced with one of the two 1979 Peugeot 104 ZS minicars he owns - and spent a year restoring with friends.
His garage also includes models such as a Nissan-powered open-wheels single-seat race car, a 1976 Alpine A110 coupe rally car, a 1979 Peugeot 504 V-6 Coupe, as well as a pretty rare 1966 Porsche 912 (a cheaper 911-sibling with the same body and interior, but powered by a 90-hp 4-cylinder engine derived from the 911’s predecessor, the 356 SC).
He finished his last race placed 107 out of a field of 275 cars that completed the 2,000-km Monte Carlo rally. He was relaxed about the result. “We had troubles with the Tripmaster (an instrument to calculate time, speed and distance). The car would have been able to finish better than what we actually did and we will try again next year,” he said last month in his native Lisbon. The day after, the news of the PSA-Opel deal leaked to the media and since then Tavares has spent weekends working on making the deal to happen rather than racing or restoring one of his cars.
Peter Sigal, Bloomberg and Reuters contributed to this report