Stellantis CEO Carlos Tavares scrambles to revive North American operations

Stellantis CEO Carlos Tavares is set to visit Detroit this week, marking a critical intervention in the company’s troubled North American operations. With the automaker’s profitability in the region plummeting, Tavares’ visit aims to craft a new strategy to restore investor confidence and stabilise the workforce. This visit, during Tavares’ summer break, signals the urgency and importance he attaches to resolving these issues.

Why Tavares Is Personally Involved?

Tavares’ hands-on approach is unusual, as he typically visits North America every four to six weeks. However, his decision to visit during his holiday underscores the severity of the situation. According to a source familiar with the matter, “He wanted to make clear he was handling it personally. North American operations are basically funding the rest of the group.” The significance of the visit cannot be overstated, as Stellantis' North American arm has been the financial engine driving the company’s global operations.

The Financial Impact of North American Struggles

The automaker’s North American operations have faced a series of setbacks, resulting in a 40% drop in operating income in the first half of the year. Sales for Stellantis’ flagship brands, Ram and Jeep, have declined by over 33% compared to the first half of 2019, according to Cox Automotive. Tavares himself admitted that he had been slow to react to the growing challenges in the region, attributing the company’s struggles to a mix of high vehicle inventories, manufacturing issues, and a lack of responsiveness to market signals. He candidly stated, “We were arrogant. I’m talking about myself, nobody else.”

Strategic Missteps and Market Realities

One of the critical mistakes Stellantis made in North America was the continued price hikes in an already strained market. According to Jefferies analyst Philippe Houchois, the company’s push to boost margins through higher prices backfired, as customers were unwilling to pay the increased costs, rendering some Stellantis models too expensive. “They have lacked pragmatism to address straight away the inventories building, they should have made more tactical prices to avoid that,” Houchois explained. This pricing strategy led to bloated inventories and a significant loss of market share.

Operational Inefficiencies and Workforce Challenges

Tavares’ visit also comes at a time when Stellantis is taking drastic measures to cut costs, including significant layoffs. The company recently announced it would lay off up to 2,450 workers at its Warren Truck Assembly Plant in Michigan as it ends production of the Ram 1500 Classic truck. Additionally, voluntary buyouts have been offered to U.S. salaried employees as part of the broader effort to trim expenses. Tavares has also identified inefficiencies at two U.S. plants, although he has not specified which ones. However, he did mention that the Sterling Heights Assembly Plant in Michigan was operating below optimal efficiency.

Investor and Union Discontent

The situation has not gone unnoticed by investors and union members. The United Auto Workers (UAW) has expressed growing dissatisfaction, with UAW President Shawn Fain warning of potential strikes if Stellantis fails to meet its investment commitments outlined in the labour deal agreed upon last autumn. Relations between the union and Stellantis have been strained, particularly as the company continues to lay off hourly workers.

Adding to the company’s woes, a group of shareholders recently sued Stellantis, alleging that the automaker had misled them by concealing rising inventories and other operational weaknesses, leading to a sharp drop in its stock price following disappointing earnings. Stellantis has dismissed the lawsuit as “without merit,” and has reassured the UAW that it has not violated the terms of their agreement, arguing that a strike would be illegal.

The Road Ahead for Stellantis

Tavares’ visit this week is crucial for the future of Stellantis’ North American operations. By the end of the week, he is expected to have developed a strategy to address the ongoing challenges. The stakes are high, as the North American market remains a critical profit centre for Stellantis, funding its global operations. However, Tavares will need to navigate a complex landscape of investor concerns, union demands, and market realities to stabilise the company’s position in the region. As Tavares prepares to roll out his plan, the auto industry will be watching closely to see if he can steer Stellantis back on course without sacrificing financial discipline or further alienating key stakeholders.

(Inputs from Reuters)