Stellantis CEO rushes to develop turnaround strategy for struggling North American operations

To underscore the urgency to address Stellantis' struggling North American business, CEO Carlos Tavares will visit Detroit this week to devise a strategy to turn around the company's fortunes in the region. According to a person familiar with the plans, Tavares' visit during his summer break is a clear signal that he is personally taking charge of the situation.

The source, who spoke on the condition of anonymity, stated that Tavares typically visits the North American operations every four to six weeks, but this week's visit is meant to send a strong message: "He wanted to make clear he was handling it personally. North American operations are basically funding the rest of the group."

Stellantis has been grappling with a host of issues in its North American business, which Tavares described as "humbling" during the company's first-half results presentation. These issues include high vehicle inventories, manufacturing problems, and a lack of "sophistication" in addressing the local market.

The impact of these challenges has been significant. Stellantis' first-half operating income fell 40%, primarily due to the poor performance in North America, its profit powerhouse. Sales for the company's top brands, Ram and Jeep, have both declined by at least 33% from the first half of 2019 to the same period this year, according to research firm Cox Automotive.

Tavares has acknowledged the company's missteps, saying, "We were arrogant. I'm talking about myself, nobody else." He has blamed himself for not acting quickly enough to address the mounting problems in the North American operations.

The CEO's visit this week to the U.S. offices in Auburn Hills, Michigan, will initially involve meeting with top-level managers before he formulates a strategy by the end of the week to fix the issues. This sense of urgency comes amid growing unease among investors and union workers over the North American struggles.

United Auto Workers President Shawn Fain has threatened that the U.S. union representing plant workers may strike if the automaker fails to keep the investment commitments outlined in last autumn's labour deal. Additionally, a group of shareholders has sued Stellantis, alleging that the company defrauded them by concealing rising inventories and other weaknesses before posting disappointing earnings that caused its stock price to fall.

Stellantis' main mistake in North America, according to Jefferies analyst Philippe Houchois, was to keep increasing prices in a bid to boost margins even as the market was signalling that customers were not ready to pay, making 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 said.

As Tavares rushes to develop a turnaround strategy, the pressure is on to demonstrate that he can increase car sales without compromising margins, losing money, and burning cash. Massimo Baggiani, the founder of Niche Asset Management in London, believes Tavares remains "the best executive in the industry" and that it is now crucial for him to maintain financial discipline.