PSA’s CEO on What It Will Take to Re-Enter the U.S.
No one can accuse the French company of saying the wrong things.
Our New York bureau chief Jamie Kitman recently sat down with the CEO of French automaker PSA Carlos Tavares to further discuss the company's future in North America and across the globe. Note: This interview, which took place before the recent Carlos Ghosn scandal, has been edited for clarity.
Automobile Magazine: Why come back to North America?
Carlos Tavares: Because it is one of the biggest [markets] in the world and being present in Europe, in China, we also need to be present in the United States, as we were a long time ago. So, we want to come back. We want to come back to stay. Perhaps that's the most important fact.
We understand that the investment in the U.S. market will be long. It will take time. This is the reason why when we presented the Push to Pass strategic plan we said we would take 10 years. We want make sure that our teams understand the U.S. consumer, so we decided that we would start by understanding them through the mobility services activities that we are now implementing. It is a good way to understand the market.
We also started a very deep planning phase. We are working on three major decisions that we need to make before the Spring of 2019. The first decision is what the product line will be, and what brand that we are going to bring to the United States. The second is what the distribution model is going to be. Because distribution is, or course, paramount for sales and marketing efficiency, for the costs of the distribution, for the efficiency of the marketing and communications. The third decision is about sourcing. [Once] those three strategic decisions are made, we'll be in a position where we'll be able to start the implementation of our plans.
AM: Where do you enter the market? Everybody is obsessed with volume yet that's probably the hardest nut to crack. Either Peugeot or Citroën would likely be seen as a reasonably premium brand, and without even having a car, you kind of have the opportunity to come in at a slightly higher level.
CT: I think you are absolutely on the spot. We need to understand who our target customers could be. We have done focus groups on the perception of our models and our brands. We were very encouraged. Most of our brands are perceived as being quite upscale which of course opens value opportunities in valuable positions.
Of course, [we need to do] the detail work in terms of product planning, sales planning, selecting the target customers, making sure that for those target customers we mean something different from all the other OEMs, and we talk to them in a way which is relevant for them.
AM: Right. But broadly, doesn't it seem a stretch to go in as a mainstream brand?
CT: We don't exclude that because we are in other parts of the world being a mainstream brand or upper part of the mainstream with some of our brands. This is not preventing us from bringing appropriate value. So far what is rather surprising, and rather positive, we didn't see anything that was negative. Our [brand] equity in the U.S. is so limited that we are starting from a white sheet of paper.
AM: What is the future of your concept car based on the old Pininfarina 504 coupe, the E-Legend? It looks great.
CT: So far, this is a pure concept car. It is here to express the creativity of our people and the vision we have for autonomous driving, but it's a car where you can still enjoy driving. So we have a steering wheel that is retractable, and you can use the firewall as a giant screen to enjoy entertainment. You have fully autonomous [capabilities] but when you want to drive, you get your steering wheel back. We will discuss with the teams if it makes sense to one day make it happen or not, but at this stage it is the expression of our vision of what a stylish, autonomous, zero-emission coupe might look like.
AM: It's an exception to what we most often we see now in the States, which is that everyone wants to make a crossover. Electric cars seem likely to be more like SUVs than less.
CT: We estimate that sedans and coupes still have a future for the very simple reason that a boxy SUV has a frontal area which is much bigger and therefore is going to absorb much more energy. And if you are talking about the quantity of energy that you put in your batteries to ensure a certain range, the more energy you are going to use, the lower the range, which of course is one big expectation of our customers. We believe that sedans and coupes still have a future because their ability to use less energy through aerodynamics.
AM: As a matter of strategic planning, do you believe that perhaps what's going on in the States now in terms of the environmental policy is an aberration, that the country will return to being concerned about efficiency and things like that?
CT: It depends on the citizens. It depends on what the American people think about what should be done for the future. I think there is a lot of wisdom in the society. At one point in time this expectation may be stronger that what it is today and of course, politicians will have to take that into consideration.
What we can tell them is that we have the technologies to support low-emission vehicles and clean mobility. We are able to bring this technology for the U.S. consumer if it is something that makes sense. By the way, it doesn't have to be driven by regulations. It can be also an expectation of the U.S. consumer that is sensitive to environmental issues, and that concern about those issues can be demonstrated by buying a pure EV or a plug-in hybrid.
AM: PSA is run against the trend of companies doing worse. You've expanded and grown in the last five years, a time when things have looked grim for many other companies. Yet one sees the pressure that autonomous cars, electrification, and the other forces of the market suggesting that maybe there will be fewer car sales overall. If it's true that the market will shrink, what can be done to preserve your position?
CT: We start from a very simple thought: We believe that human beings are eager to protect their spontaneous freedom of movement. You need to have an available mobility tool that is going to fulfill this need for your freedom to move anywhere and at any time. The U.S. market is unique because there are a lot of big distances, and there is a significant infrastructure for automobiles. We see that the need to be able to meet this expectation of spontaneous, convenient, and comfortable freedom of movement is still very strong.
This being said, if you go look at the urban areas of cost shared mobility, [the convenience to choose your method of mobility] is also a significant trend. That's why we have introduced our Free2Move mobility service in the United States. But to a certain extent, there is some divergence between urban and rural areas in terms of expectations for the ability to [travel, for example using a vehicle] that you own for rural areas or one that you share for urban areas.
We are embracing these two trends in a very dynamic way. We believe we need to bring solutions to the consumers. Of course, autonomous vehicles will be very appropriate for shared mobility. It is quite obvious. We also see that autonomous vehicles will have such a high level of technology density, that most will probably be very expensive. If they are very expensive, they carry the risk that they are used by wealthy elites. Or that they have to be shared because they are so expensive that of course they have to be shared with different kinds of users.
The most important thing that people will not compromise on is safety. We make sure we mature and fully certify each level of [autonomy that we will offer]. At any point in time, we don't care if we're not exactly first on the market. We will make sure that we are very clear on what we are offering. What are the limits? So that we reach level 5 [full autonomy] then the technology is mature, it's safe, and we will be able to tell our customers, please go ahead. We are not in the race of being number one. It doesn't make sense to [do so] at any cost when the risk is that you will not validate and certify properly each of those steps.
AM: What do you see in the age of autonomy? What does it mean when you don't feel anything through the steering wheel because there's no steering wheel? What does your sophisticated suspension mean to somebody who's sitting in the back of a mobile party palace, concerned about whether they can lie down and how cold their beer is?
What does that mean for a brand, when everything is fast, everything is safe, and reasonably comfortable? Most vehicles are already pretty boring, and consumers may only care about the resolution of the giant screen in the back, or how many different devices they can connect at once. At that point, who cares if you have leading dynamics or the platform you use is based on a pickup truck?
CT: That's a great point, but I'm not as pessimistic as that. If you look back again at the E-Legend, it can offer the pleasure of driving and the chassis is tuned to be a very lively and dynamic chassis. And at the same time, if [there is a lot of traffic and] you want [the car to drive so you can] have quality time or discussion with your friends and with your family, you can also do so. It's not exclusively driving pleasure or quality time with your family.
Of course, if you think you want a box that is fully autonomous, there is no more driving. In that case, I would argue that you will still care about the mph, your comfort, the air-conditioning system temperature. And, yes, the beer needs to be at the right temperature also. [laughter] It's another kind of pleasure, right? You will enjoy the quality of everything, which is full entertainment, air conditioning, speed, ergonomics. It's going to be a little bit different but at the end of the day, if we step back, when we first enjoyed driving, it was all about freedom of movement, ensuring freedom of movement and going around all the limitations of societies. You want to be mobile, you don't want to be limited. Your capability to go anywhere when you decide to go—we will bring you a solution.
AM: Let's talk about Opel, another brand that I was fond of as a youth. Why did you buy this company, and what does Opel stand for now? What does being German mean, if anything at all?
CT: We bought it because we recognize that in many areas of the world many consumers consider German brands to have a specific value in terms of engineering, reliability, and everything that goes with that. We recognize that in many overseas markets this is how consumers think. Being a French carmaker we may be frustrated by that and we may say the facts aren't supporting that anymore, but this is the perception.
We bought Opel because we wanted to buy a German brand and a British brand [Vauxhall] that has a significant power in the U.K. We looked at it and saw that the products were okay, if not very good. Our confidence level at being able to turn around those brands was reasonably high—not arrogant, but reasonably high—based on what we'd succeeded with at PSA. We wanted to enlarge our portfolio to complement the three French brands that we already have, and we are happy that we could solve a problem for GM and bring value to our own shareholders.
AM: Why couldn't GM do what you're doing?
CT: Perhaps their knowledge of the European market is not as deep as it needs to be. This is the reason why we are very humble regarding our comeback to the U.S. We also recognize that we need to learn a lot about the market. It's true that Europe is a specific region with specific expectations, specific regulations, specific politics, specific union relationships. All of this creates an overall environment that is very complex. I can understand that and perhaps that at one point in time GM considered that it was best to move out than to stay in and to continue to try after 20 years of losses.
AM: Have you considered partnerships for the U.S.?
CT: So far, it's not the strategy, but we don't reject that idea.