Stellantis faces slowing markets with cost cuts close to limit

PARIS: Stellantis NV’s push for deep cost cuts is coming up against limits just as auto markets slow and returns flag.

The maker of Ram pickups and Jeep SUVs will look to soothe concerns about its position - it’s been giving up ground in the US and Europe - when it convenes investors Thursday in Auburn Hills, Michigan.

Shares in the company led by chief executive officer Carlos Tavares have dropped 13% since management slipped a profit warning into a quarterly call in April.

"Tavares used to be a market darling, always under-promising and over-delivering,” said Florian Allain, senior portfolio manager at Mandarine Gestion and a Stellantis shareholder.

"The first-quarter warning is the first big stumble in a trajectory that had been perfect until now.”

Stellantis on Thursday broadly confirmed targets for this year, including a first-half operating return of 10% to 11% while industrial cash flow will be "visibly” below the same period a year ago, it said in a statement ahead of the meeting.

Cash flow will improve during the second half of the year on the back of a range of new models and cost cuts, the company said.

Since the 2021 merger of Fiat Chrysler and France’s PSA Group, Tavares has lowered costs by pooling resources.

Measures have included cutting the number of vehicle platforms to just four from 25 and eliminating jobs - at times, to the chagrin of governments seeking to protect workers.

The efforts largely paid off, with record returns putting Stellantis ahead of rivals like Volkswagen AG and Renault SA with the highest margins among mass-market manufacturers.

In recent months, however, the auto industry’s outlook has dimmed, with consumers weighed down by high borrowing costs and muted economic growth. Those issues supplanted supply-chain problems that choked production and inflated vehicle prices.

Slowing demand for electric vehicles is yet another challenge, with the European Union’s decision Wednesday to levy additional tariffs on Chinese EV imports further complicating matters.

Tavares plans to meet these headwinds by cutting more workers in France, Italy and the US, and by launching a model offensive that includes the €23,300 ($25,044) Citroën ë-C3.

A plan to soon introduce EVs co-developed with China’s Zhejiang Leapmotor Technologies Ltd. in several European countries won’t be affected by the EU’s decision, according to the company.

In the US, reining in vehicle inventory is among Stellantis’ most pressing issues. While US sales improved in May, absolute inventory still hit at a record high of 423,000 units, according to Citigroup Inc. analyst Harald Hendrikse.

Another cause for concern: at least four top executives have left the company in the past month.

The exodus has included Tim Kuniskis, a 32-year Chrysler veteran who oversaw the Dodge muscle car and Ram pickup brands; and Jason Stoicevich, the senior vice president of retail sales who had tried to mend frayed relationships with US dealers.

"We now see signs of fatigue in staff turnover and concerns on how to reverse share loss,” Jefferies analyst Philippe Houchois wrote last month. "Carlos Tavares’s industry views are refreshing and inspiring, but he created an adversarial environment with suppliers, dealers, unions and public authorities.”

In Italy, Giorgia Meloni’s government has clashed with Stellantis over plans to move production to lower-cost countries.

Last month, financial police seized dozens of Fiat Topolinos that carried the national flag despite the company assembling the cars in Morocco. Stellantis also renamed a new Alfa Romeo after Rome took issue with its plan to call the made-in-Poland SUV the Milano.

"I am not completely at ease with Tavares’s communication style,” Allain said.

"I also don’t know to what point middle and top management are getting tired of his style and methods - there’s a big product rollout coming, and if you don’t have total adhesion of your teams, then it becomes a problem.”
Autos Stellantis