Summary
- Stellantis CEO Carlos Tavares starts a 3 day visit in the US to address lagging profit in North America
- Tavares’ visit during his summer break is intended to reassure employees and investors
- North America is group’s profit powerhouse
DETROIT, (Reuters) – Stellantis CEO Carlos Tavares has started a three-day visit in Detroit, where he will seek to develop a strategy to fix the European automaker’s struggling North American operations and reassure employees and investors, two people familiar with the plans said.
The strategy is likely to be developed by the end of this week, said one of the sources, who asked not to be identified.
While Tavares typically visits the North American operations every four to six weeks, the CEO’s visit this week during his summer break is meant to send a clear signal, the two sources said.
“He wanted to make clear he was handling it personally,” one of the sources said. “North American operations are basically funding the rest of the group.”
Tavares, who described Stellantis’ first-half results as “humbling,” has said the French-Italian automaker’s North American business suffered from a mix of high vehicle inventories, manufacturing issues and a lack of “sophistication” in how it addressed the local market. Stellantis shares have tumbled almost 50% from March highs as a result.
A spokesperson for Stellantis declined to comment.
During the visit this week to the U.S. offices in Auburn Hills, Michigan, Tavares will initially meet with top-line managers before formulating a strategy by week’s end to fix things, one of the sources said.
The second source said the main focus of those “immersive” days with the local team was to draw a broad picture of the situation. Tavares will visit dealers and a plant in the Detroit area, and discuss issues including reducing inventories and adjusting vehicle production, the source added.
Stellantis’ first-half operating income fell 40%, mainly due to poor business performance in North America, its profit powerhouse. Vehicle sales in the region for Stellantis’ top brands, Ram and Jeep, have both declined at least 33% from the first half of 2019 to the same period this year, according to research firm Cox Automotive.
‘WE WERE ARROGANT’
Tavares blamed himself for not being quick enough to act while problems at the group’s North American operations were piling up and, when presenting first-half results, said he would spend part of his summer holidays there to fix them.
“We were arrogant,” he said earlier this year at Stellantis’ investor day in Michigan. “I’m talking about myself, nobody else.”
Those results came just after Tavares enjoyed a compensation package on Stellantis’ 2023 results of up to 36.5 million euros ($40.6 million), a 56% increase from a year earlier.
Stellantis’ main mistake in North America was to keep increasing prices in a bid to boost margins even as the market was signalling customers were not ready to pay, making some Stellantis models too expensive, Jefferies analyst Philippe Houchois said.
“They have lacked pragmatism to address straight away the inventories building, they should have made more tactical prices to avoid that,” Houchois said.
Massimo Baggiani, founder at Niche Asset Management in London, said Tavares remains “the best executive in the industry.”
“It’s key now for him to keep financial discipline. He needs to show that he can increase car sales without compressing margins, losing money and burning cash,” Baggiani said of Tavares.
Stellantis already has moved to cut costs by reducing its U.S. workforce.
It said this month it would lay off up to 2,450 factory workers from its Warren Truck assembly plant outside of Detroit as the automaker ends production of the Ram 1500 Classic truck. In late July, the company said it would also offer a round of voluntary buyouts to U.S. salaried employees.
Tavares also has said there are particular inefficiencies at two U.S. plants, but has declined to specify which ones. In July, he told reporters the run rate at its Sterling Heights Assembly Plant in Michigan was poor.
Tavares’ visit comes amid increasing uneasiness among some investors and union workers over the North American struggles.
United Auto Workers President Shawn Fain has threatened that the U.S. union representing U.S. plant workers may strike if the automaker fails to keep the investment commitments outlined in last autumn’s labor deal. Relationships between the union and automaker have been tense as Stellantis has laid off hourly workers at plants this year.
Meanwhile, a group of shareholders last week sued Stellantis, saying it defrauded them by concealing rising inventories and other weaknesses before posting disappointing earnings that caused its stock price to fall.
The company has said the lawsuit was “without merit” and told the UAW it had not violated terms of their bargaining agreement and the union could not legally strike.
(This story has been refiled to fix a typo in the headline)
($1 = 0.9 euro)
Reporting by Giulio Piovaccari in Milan, Gilles Guillaume in Paris, Nora Eckert in Detroit; Editing by Ben Klayman, Matthew Lewis and Louise Heaven
