Stellantis CEO Carlos Tavares is making a special visit to Detroit this week to address the struggling North American operations of the French-Italian automaker. Tavares aims to develop a strategy to fix the issues and reassure employees and investors. This visit during his summer break is meant to send a clear signal that he is personally handling the situation.
The North American operations of Stellantis are crucial to the overall success of the company, as they fund the rest of the group. However, these operations have been facing challenges, including high vehicle inventories, manufacturing problems, and a lack of sophistication in addressing the local market. These issues have led to a significant decrease in Stellantis’ share value, with a decline of almost 50% from March highs.
Tavares has taken responsibility for the problems and admitted that the company was arrogant in its approach. He acknowledged that he should have acted more quickly to address the issues at the North American operations. To rectify the situation, Tavares plans to spend part of his summer holidays in the region, focusing on finding solutions.
One major mistake Stellantis made in North America was continuously increasing prices to boost margins, even when customers were unwilling to pay. This resulted in some Stellantis models becoming too expensive for the market. Analysts have criticized the company for lacking pragmatism and not addressing inventory buildup in a timely manner.
Despite these challenges, Tavares is regarded as one of the best executives in the industry. However, he needs to demonstrate financial discipline and find a way to increase car sales without compromising margins or burning cash, according to Massimo Baggiani, founder at Niche Asset Management.
To cut costs, Stellantis has already implemented measures such as reducing its U.S. workforce. The company plans to lay off up to 2,450 factory workers from its Warren Truck assembly plant and has offered voluntary buyouts to salaried employees. Tavares has also mentioned inefficiencies at certain U.S. plants, although he has not specified which ones.
The North American struggles have generated uneasiness among investors and union workers. The United Auto Workers (UAW) has threatened a strike if Stellantis fails to fulfill its investment commitments outlined in the labor deal. The relationship between the UAW and the automaker has been strained, with Stellantis laying off hourly workers at plants this year. Additionally, a group of shareholders has filed a lawsuit against Stellantis, accusing the company of concealing rising inventories and other weaknesses that caused disappointing earnings.
In response, Stellantis has stated that the lawsuit is without merit and has assured the UAW that it has not violated the terms of their bargaining agreement, making a strike legally impossible.
Overall, Tavares’ visit to Detroit signifies the company’s commitment to addressing the challenges in its North American operations. With a clear strategy and a focus on financial discipline, Stellantis aims to boost car sales, regain investor confidence, and maintain a positive relationship with the UAW. The success of these efforts will be crucial for the future performance of the company.
