FRANKFURT -- With a track record of streamlining PSA Group's portfolio of vehicles, engines and platforms, and offering generous layoff terms to cut jobs Carlos Tavares has a ready-made manual for combining France's most profitable automaker with Fiat Chrysler Automobiles.
FCA has so far failed to reach sustainable profitability for its Fiat small cars in Europe, something which Tavares found a successful formula for at PSA, which is heavily exposed to the segment with its Peugeot, Citroen, Opel and DS brands.
Tavares will be CEO of a combined PSA and FCA, the companies said on Wednesday when they announced that they had reached a binding merger agreement.
When Tavares took on the CEO role at PSA in 2014, the company was losing money and needed a capital injection from the French state.
In 2017 when PSA acquired Opel from General Motors, the German automaker had racked up losses of 20 billion euros ($22 billion) in the previous decade under GM ownership.
By the first half of 2019, after Tavares and his team went to work cutting complexity, Opel made a 700 million-euro profit.
"The key element of this deal – the very fulcrum – is Carlos Tavares. He has been talking about the assets and attractions of FCA for at least 4 years," said Bernstein analyst Max Warburton.
"He has long coveted the profit potential of Jeep and RAM. He has long pondered the potential of FCA's European brands and business," Warburton wrote on Wednesday in a note to investors.
Tavares success came partly from streamlining the model line-up of the PSA brands. The company is phasing out the Peugeot 208 GTi, 308 GT, as well as the Opel Adam, Cascada and Karl models, and moving all new vehicles to PSA's CMP or EMP-2 car platforms, which Fiat Chrysler will also use for future models.
This contrasted with GM, which built cars and vans sold by Opel and its UK sister brand Vauxhall on nine different platforms.
One area Tavares will be able to use to the combined company's advantage is that PSA's underlying vehicle architecture is more modern and flexible than FCA's giving it an edge ahead of stringent new emissions rules in 2021.
By next year, CO2 must be cut to 95 grams per km for 95 percent of cars from the current 120.5 gram average in Europe, a figure that has risen of late as consumers spurn fuel-efficient diesels and embrace SUVs.
PA Consulting, which extrapolated future emissions penalties by using historical registration patterns, forecasts that FCA could face a 430 million euros fine as a result.
A further 15 percent cut in CO2 is required by 2025, extending to 37.5 percent by 2030. Fines of 95 euros ($105) per car, per excess gram of CO2, can quickly add up to hundreds of millions.
Even by the time PSA bought Opel in August 2017, Tavares had cut about 3,000 French assembly line jobs at PSA each year through voluntary departures to trim the wage bill to 11 percent of revenue from 15 percent.
Tavares also took a more stringent look at the profitability of distribution and sales networks, overhauling Opel and Vauxhall's sales organizations in Ireland, Greece, Czech Republic and Slovakia, hiring new importers and weeding out unprofitable dealerships.
To cut excess car assembly and engineering staff without forced redundancies, PSA offered Opel workers "speed bonuses," which offered more generous buyouts for those who left quickly.
Tavares also publicly stoked competition among Peugeot and former Opel factories to bring down costs and raise quality, successfully playing off workers to achieve his targets.