TURIN/PARIS -- The signing of a binding combination agreement between PSA Group and Fiat Chrysler Automobiles to pursue a merger of the two companies is a victory for Carlos Tavares, the CEO of PSA, who would lead the combined enterprise.
The new company could build nearly 9 million cars a year, making it the world's fourth-largest automaker. Annual revenues would be 170 billion euros. It would have factories and research centers spanning the globe, 14 brands, and hundreds of thousands of managers, production workers and engineers.
The Portuguese-born Tavares, now 61, would have a five-year term as CEO. He would also be the 11th vote on a board that would be made up of five directors appointed by PSA and five by FCA.
FCA Chairman John Elkann would be the chairman of the new company -- but he would be just one of those 10 board members, giving Tavares the power to break any tied votes.
Tavares has won praise for leading PSA Group from near-bankruptcy in 2014 when he became CEO to record profit margins. He polished his reputation by bringing Opel to profitability just 18 months after acquiring the troubled, money-losing brand from General Motors in 2017.
He will be overseeing a combination of two companies that, in his words, are doing pretty well at a time when the global auto market is slowing.
But huge challenges and choices lie ahead. Should billions be invested now on technologies such as self-driving cars that may not be profitable for decades, if ever? What is the appropriate level of electrification, as emissions standards tighten in Europe and China, but remain relatively lax in the U.S., where almost all of FCA's profits come from? What functions should be combined between FCA and PSA, a decision that could mean thousands of layoffs or job reductions?
So as Tavares faces his biggest test yet, it's worth examining his management strategy to see how he might run the new company. Here are some of his concepts:
1. Always make money: Profitability is Tavares's golden rule, "Article No. 1" in any discussion with his teams. It is applied to everything, from new products, technologies and markets to brand-enhancing activities such as racing and even auto shows. Any proposal that cannot show a return is a nonstarter. And if a project's returns fall below expectations, it is over. A corollary for Tavares is "cash is king," as that allows a company to retain its independence and finance future investments.
Profits follow from operational excellence, he likes to say. And with an operating margin of 8.4 percent in 2018, PSA was the most profitable volume automaker in Europe last year, ahead of even several German premium brands.
To achieve that, there is no time to rest, he says.
"Am I pushing too much? Should I ease a little bit? No, don't do that," Tavares said in a wide-ranging interview with Automotive News Europe on Nov. 7 in his office outside of Paris.
"Keep it flat out, because if you start easing the pressure on the pedals, you will not be in the trend to become No. 1 in profitability. And if you are not in that trend, then we are going to be overtaken. And if we are overtaken, then we are at risk," he said.
2. Keep a lid on spending. Even before joining PSA in 2014, Tavares was clear on the need to be frugal.
"We need to have people inside the company acting as if what they spend was their own money," he told ANE in June 2012, when he was still COO of Renault Group. "There (are) lots of things that people would not do with their own money, but they think it's normal to do it in the company."
"It's not the company of Tavares or of Ghosn or of the shareholders," he said, referring to Carlos Ghosn, the CEO at the time. "First, it's our company. We should nurture it and use it in the most efficient way without wasting resources."
He has applied the same frugality to his tenure at PSA. No private jets -- he always flies commercial, sometimes adding a stopover if the fare becomes considerably cheaper. On high-speed trains, a fast and efficient means of transport when your headquarters are at the very center of Europe, he travels strictly second class.
The sole "luxury" that Tavares has granted himself is the only closed office in PSA's new headquarters in Rueil-Malmaison, a western suburb of Paris. There, all the other top executives work in open space offices. There are no paintings or art on the walls, just three one-tenth scale models of Citroen and Opel rally cars, and a Peugeot Le Mans race car.
3. Do not chase volume: Tavares has now been the architect of two turnaround plans -- one for PSA and one for Opel -- and a second mid-term plan at PSA, but they do not contain sales targets. In his view, selling more cars follows from doing good work.
Commenting on the 2014 Back in the Race plan for PSA, he said: "There was no commitment on volumes, because what's the point of selling tons of cars while you're losing money? This is a financial turnaround plan to bring the company back to a sound foundation. Once the basics are sound, we will build a profitable growth plan."
4. Meritocracy. The merged company will start with the three key positions already agreed upon by PSA and FCA. FCA Chairman John Elkann will serve as chairman of the new company, with an executive from the PSA side to serve as vice chairman, and Tavares will be CEO.
But the company of origin of the other top executives will not be a factor in their appointment, a principle Tavares applied to integrating Opel/Vauxhall into his France-based PSA. "The only rule would be meritocracy," he said about the merged company. "In the interest of everybody in the company, in each key position, you should pick the best possible executive to deliver results for everybody to enjoy"
5. Foster debate: Tavares says he does not want "yes men" nor unanimity. He is convinced that the best decisions for the company can only be made after different views are debated. But sometimes, he said, he has to actively encourage debate within his top lieutenants. He will ask two, three, "even five times" if there are any different views on a certain topic.
"I'm training (my teammates) to disagree with each other in a way which has to be extremely respectful, trying to promote active listening," he said. "There is tension, but there is no acrimony," he said. "I always say to my teammates, 'Thank you for taking the risk of disagreeing.' That's very important."
Tavares said that since he took over at PSA, he had to cool down the debate just once or twice. "People are now trained to disagree," he said.
This approach, Tavares said, offers the advantage of accountability.
"If you respect the discipline of listening to your teammates, and respect their opinions and their contradictory arguments, you are entitled to demand discipline in the execution because everybody had the chance to disagree and everybody was respected and listened to on these arguments," he said.
6. The personal touch: While Tavares love to promote debate among PSA's 19-member global executive management board, which meets twice a month, some executives might fear to be publicly "grilled" by his or her peers in presenting a new plan or project for approval, he said.
For guidance or coaching, he said, they can use their monthly one-on-one, hour-long meetings with him. Tavares's personal assistant has the duty to make sure each management board member does in fact get their hour of facetime with Tavares each month.
7. Stay humble: In his personal style, Tavares is very different than the "Super CEO" characters of Ghosn, his former boss at Renault, and former FCA CEO Sergio Marchionne.
He adopts a very -- sometimes, perhaps even excessive -- low-profile attitude. Even though he has been considered the architect of a PSA-FCA merger, and will lead the new company, he prefers to be seen as merely an object to make it work.
"The CEO is just a tool to make things happen, and the toolbox is very, very big," he told ANE. "I want to be very humble. I'm privileged to have the opportunity to bring this deal to a conclusion, to the closing, with all the teams involved."
In his vision, the CEO is there to make sure the new company is moving forward in terms of technology investment, profitability and work-life balance, among other things. "Success for all of us would be that in a few years nobody remembers who appointed the board members," he said.
8. Be strategically outspoken: Tavares is generally calm and speaks rationally, but there have been times when he expresses himself forcefully -- and then he takes no prisoners.
In taking the helm of PSA in 2014, a company that had lost more than 7 billion euros in the previous five years because, as he then said, "making money was not the core value here."
On Volkswagen diesel-cheating case, his view is short and not so sweet: "There was one single automaker that cheated, and everybody has become a crook as a consequence of that."
And when friends ask for advice on whether to buy gasoline, diesel, hybrid or full-electric models, he says he replies: "I don't know. Ask the government. They are making the technology decision because it is not technology neutral regulation anymore, so they are telling you that EV is best."
On the cost of lower emissions: "Citizens should understand that the cost for reducing CO2 is going to be paid by them, either through taxes or through (higher costs for) mobility."
And last May, when FCA had proposed to merge with PSA's crosstown rival Renault, an internal note from Tavares to PSA employees leaked outside the company. The note, which PSA would not comment on, reportedly called the deal a "virtual takeover of Renault by Fiat Chrysler," partly due to a low Renault market valuation. The merger, the note said, seemed "particularly opportunistic, largely to (FCA's) benefit."
9. Think like a racing driver: With more than 500 races under his belt in over 39 years, there is hardly an on-track condition or situation that Tavares has not experienced. Racing, for him, is perhaps more natural than running a global car company.
To become a professional racing driver was his dream as a teenager, but, he said, "I soon understood that racing was expensive, and therefore I had two choices: I could become a professional racing driver, or I could earn enough money to pay for my racing."
"I discovered I was not talented enough, so I chose to be an engineer," As he's developed as a manager, Tavares says, he has incorporated some key lessons from the track.
"Despite the fact that there is only one driver, racing is a team performance, and that is the same thing in the company," he says. "Being the boss means that you need everybody to support you to get the job done.
"The second one is self-control. In racing, you can lose your temper, and that won't lead to a good performance. In the company, it's the same: The more critical the situation is, the more calm you need to be," he says. "It doesn't help to add frustration and emotion to the emotions that already exist."
"And, of course, rigor," he concludes. "In big companies, operational excellence is key, and if you don't execute your plans properly, you are out of the race, as much as in the automotive business as in racing."
Peter Sigal contributed to this report