Stellantis: terminate to re-sign?

 The management of Stellantis surprised everyone, and its distributors in particular, by indicating their termination. Although it is still difficult to determine precisely, the content of this decision seems to be associated with a quest for performance which Carlos Tavares wants to embody. It involves strong pressure on the networks to reduce both their size and their remuneration and to transfer part of the power and value to the manufacturer's head office. However, it risks coming up against the unavoidable obligation to have physical networks and the impossibility of integrating them. Negotiations will begin and will reveal the weapons that the stakeholders have to conduct them. It is not certain that Carlos Tavares has not overestimated his own.

Carlos Tavares is very proud to present himself to his employees and observers as a performance obsessive or even a psychopath. 
The said employees are under this pressure. The suppliers are also aware of it and know the degree of demand - even violence - that is associated with it. The distributors have sensed it and know that Stellantis and his boss are not living in a world of carefree dreams but, for the moment, except for Opel, the success of the product policies has given them a lot to work with and has allowed investors to share some of the pricing power with their manufacturer by generating enviable profits.  
 
With the creation of Stellantis which, in Europe, must no longer manage only Peugeot, Citroën and DS but also a collection of brands with a more uncertain positioning such as Opel/Vauxhall for the last 4 years and now Fiat, Jeep or Alfa Romeo, distributors can expect to be confronted head on with the Mr Hyde that Dr Jekyll of pricing power has hidden from them over the last few years.
 
This is how one can interpret, at first glance and before Stellantis has announced how the new contracts will be designed, the termination of all old dealer as well as agent contracts that was announced on 19 May.
 
In fact, the general termination virtually dissolves the entire Stellantis network in order to rebuild a new, probably leaner one. The upcoming revision of the European regulatory framework is cited as the reason for this. The press release states: "In this context, the sales and service distribution contracts of all Stellantis brands will be terminated with two years' notice and the new distribution network will be selected shortly thereafter, based on objective criteria and key factors," the automotive group said. 
 
As Bernard Lycke, CECRA's Director General, explained to Florence Lagarde in Autoactu on Friday, the argument of the new regulation is a bit curious since the termination comes before the European text is finalised and it is therefore possible to design new contracts whose legality is assured.
 
The suddenness of the termination decision in this context seems to indicate a clear desire to give itself the means to fully exert this pressure and to protect itself against a possible Austrian syndrome which would, against what is perceived by Stellantis management and many observers as being "the direction of history", strengthen the negotiating power of the network and limit cost reductions and/or transfers of margins and power from distributors to their manufacturer.
 
As we explained some time ago, over the months we have seen a fairly coherent distribution and/or service development strategy asserted at PSA which made distribution a "new frontier" in the context of the psychopathy claimed by its top management.
 
It basically consisted in considering that the head office could, in many fields - and not only in the sale of new cars - do at least as well by addressing the customers directly as its distributors: by delegating less, thanks to digital technology in particular, and by monitoring more, Stellantis could improve its commercial performance in the field of new cars, used cars, PR, after-sales, credit, trade-ins...
 
There could then be fewer dealers, using less land and less staff and training. Perhaps it would then be easier to maintain brands with small market shares and to have a significant part of the sums that the brand's customer agrees to pay, which for the moment must be left to the distributors, go back to the headquarters.
 
Obviously, for this to happen, contracts must be rethought and allow for several forms of customer request processing involving the distributor and its manufacturer to a greater or lesser extent and ultimately justifying very different respective remuneration.
 
Since the intention is clearly to move the cursor against the skills, market power and remuneration of the distributors, the negotiations could be difficult for a manufacturer which - as has always been the case in this industry - does not have the means to fully integrate its distribution and has - and will continue to need - a physical network.
 
Nevertheless, by resigning everyone to start these negotiations with the network representatives and then with the investors on a basis where it is clearly stated that, at the end of the reorganisation process which will take place within two years, some will continue to belong to the lightened Stellantis network and others will not, Stellantis' management can hope to protect itself against the Austrian syndrome. 
 
Beyond the obvious issue of power and value sharing and the legal questions that go with it, the economic question is to know how the physical representation of the brands will continue to be ensured. This question can be broken down into two related aspects: the first concerns the "formats" or "capillarities" that Stellantis will choose in the various countries for its different brands; the second concerns the business models, i.e. the value propositions and sources of profitability associated with these networks.
 
Manufacturers have been hoping for years that online sales will redefine the game at the top level and, with the help of the pandemic, PSA has been singing that song again in 2020.
As usual, all indications are that Stellantis will have to temper its ardour in this area.
 
The problem is that, at the second level, the part was already only a part of PSA's business and that this policy will continue with Stellantis. If, with electrification, workshop activity drops rapidly and the manufacturer claims to deal with used cars directly via Aramis or its Spoticar site, it is difficult to see how it will be able to preserve its representation. Opel or Fiat are not Tesla: their market shares are largely dependent on their physical presence and this has a cost that must be paid for.
 
Let us add that, from March 2020 until today, apart from the quality of the product ranges proposed by PSA and the pricing power which has been associated with it, the relatively virtuous character of the commercial practices which we have seen in all the generalists (including Renault) has a very contextual cause: the massive recourse to short-time working.
 
In fact, even if they strive for greater flexibility in their factories, manufacturers still appear to be very constrained in this respect. The result is that when a product does not meet the commercial fate that one had dreamed of for it and/or when it is at the end of its cycle, it is necessary to somehow 'push' metal and the network is also there for that.
 
The combination of the great return of fixed factory costs linked to the end of short-time working with the management of multiple brands with, for several of them, several years of difficulty and uncertainty to manage will confront Stellantis with the need to have solid and loyal distribution partners.
 
The investors and network representatives of the various brands with whom Stellantis management will have to negotiate in the coming months will, no doubt, have some pretty strong arguments to counter the credo of the performance obsessives.
 
25/05/2021

The weekly column by Bernard Jullien is also on www.autoactu.com.

  GIS Gerpisa / gerpisa.org
  4 Avenue des Sciences, 91190 Gif-sur-Yvette

Copyright© Gerpisa
Concéption Tommaso Pardi
Administration Juan Sebastian Carbonell, Lorenza MonacoGéry Deffontaines

Powered by Drupal, an open source content management system
randomness