Stellantis CEO signals potential brand cuts amid U.S. market challenges

Stellantis CEO Carlos Tavares has announced that the global automotive giant is prepared to eliminate underperforming brands from its extensive portfolio and is taking decisive steps to address weak margins and high inventory levels in its U.S. operations. This declaration came on Thursday as the world's fourth-largest automaker revealed worse-than-expected first-half results, triggering a sharp decline in its stock price.

Tavares's stark warning, "If they don't make money, we'll shut them down," marks a departure from his previous stance since Stellantis' formation in 2021 through the merger of Fiat Chrysler and PSA Group. Until now, he had maintained that all 14 brands under the Stellantis umbrella, including prestigious names like Maserati, Fiat, Peugeot, and Jeep, had a secure future within the company.

The automaker's shares plummeted by as much as 12.5% following the announcement, reaching their lowest point since August 2023. This decline brings Stellantis' year-to-date stock performance to a 22% loss, making it the worst-performing major European automaker in 2024.

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While Stellantis does not disclose financial data for individual brands, it reported that Maserati incurred an adjusted operating loss of 82 million euros in the first half of the year. This performance has led some analysts to speculate that Maserati could be a potential candidate for divestment, while other brands with minimal sales contributions, such as Lancia or DS, might face elimination.

The automotive industry has seen few brand terminations since General Motors' high-profile discontinuation of Saturn and Pontiac during its government-led bankruptcy in 2008. Tavares' willingness to consider such measures underscores the severity of the challenges facing Stellantis, particularly in the crucial U.S. market.

Stellantis reported a 40% drop in adjusted operating income (EBIT) to 8.463 billion euros for the first half of 2024, falling short of analysts' expectations of 8.85 billion euros. The company's adjusted EBIT margin dipped below 10%, jeopardising its full-year target of maintaining a double-digit margin.

To address these issues, Tavares announced plans to work closely with the U.S. team throughout the summer to improve performance and reduce inventory. "We consider that the job is done in Europe," he stated. "The job is not done in the U.S., and we are now going to take care of that work."

Chief Financial Officer Natalie Knight elaborated on the company's strategy, revealing plans to reduce production and adjust prices in North America during the current quarter. These actions are part of Stellantis' broader efforts to tackle "operational challenges" in the region.

The company's struggles in the U.S. market are particularly concerning given the historical importance of high-margin vehicles like RAM pickup trucks and Jeeps to Stellantis' profitability. The weak margin performance has raised questions about the company's cost efficiency reputation, according to Bernstein analysts.

Stellantis' challenges reflect broader industry trends, including a weakening sales outlook across major markets, the costly transition to electric vehicles, and intensifying competition from more affordable Chinese manufacturers. These factors have contributed to poor results from other global automakers, such as Nissan Motor, which reported a near-total erosion of its first-quarter profit and revised its annual outlook downward.