By Giulio Piovaccari, Gilles Guillaume and Nora Eckert
DETROIT (Reuters) – Stellantis Chief Executive Carlos Tavares has begun a three-day visit to Detroit where he will seek to develop a strategy to overhaul the European automaker’s troubled 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 North American operations every four to six weeks, the CEO’s visit this week during his summer vacation is intended to send a clear signal, the two sources said.
“He wanted to make it clear that he was taking it personally. The North American operations essentially fund the rest of the group,” one of the sources said.
Tavares, who described Stellantis’ first-half results as “modest,” said the French-Italian automaker’s North American business suffered from a combination of high vehicle inventories, manufacturing problems and a lack of “sophistication” in how it approached the local market. As a result, Stellantis shares have fallen about 50% from their March highs.
A Stellantis spokesman declined to comment.
Tavares will initially meet with senior managers during his visit this week to the company’s offices in Auburn Hills, Michigan, before formulating a strategy by the end of the week to fix things, one of the sources said.
The second source said the main focus of the “intense” days with the local team was to get a general picture of the situation. Tavares will visit dealers and a Detroit-area plant, the source added, and will discuss issues including reducing inventories and adjusting vehicle production.
Stellantis’ operating income in the first half of the year fell 40%, largely due to weak performance in North America, its strong source of earnings. Vehicle sales in the region for its major brands, Ram and Jeep, fell 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 moving quickly enough as problems mounted in the group’s North American operations, and said when presenting first-half results that he would spend part of his summer vacation there fixing them.
“We were arrogant,” he said earlier this year at Stellantis’ investor day in Michigan. “I’m speaking for myself, not for anyone else.”
The results came after Tavares received a compensation package for Stellantis’ 2023 results of up to €36.5 million ($40.6 million), a 56% increase from the previous year.
The main mistake Stellantis made in North America was to keep raising prices in an attempt to boost margins even as the market indicated that customers were unwilling to pay, making some of Stellantis’ models very expensive, said Philippe Houchois, an analyst at Jefferies.
“They lack the pragmatism to deal directly with the problem of overstocking, and should have set more tactical prices to avoid that,” Hoshua said.
Tavares remains “the best executive in the industry,” said Massimo Paggiani, founder of London-based Niche Asset Management.
“It is important now for him to maintain financial discipline,” Baggiani said of Tavares. “He needs to show he can grow car sales without squeezing margins, losing money and burning cash.”
Stellantis has already taken steps to cut costs by reducing its workforce in the United States.
The company said this month it would lay off up to 2,450 workers at its truck assembly plant in Warren outside Detroit as the automaker stops production of the Ram 1500 Classic pickup truck. In late July, the company said it would also offer a round of voluntary buyouts to salaried U.S. employees.
Tavares also said there were specific inefficiencies at two U.S. plants, but declined to specify which ones. In July, he told reporters that utilization at the company’s Sterling Heights, Michigan, assembly plant was weak.
Tavares’ visit comes amid growing concern among some investors and union workers about conflicts in North America.
United Auto Workers union president Sean Fine has threatened that the union representing U.S. factory workers could strike if the automaker fails to meet investment commitments under a labor agreement last fall. Relations between the union and the automaker have been strained as Stellantis laid off hourly workers at its plants this year.
Meanwhile, a group of shareholders last week filed a lawsuit against Stellantis, saying it defrauded them by hiding rising inventories and other vulnerabilities before posting disappointing earnings that caused its stock price to plunge.
The company said the lawsuit was “baseless” and told the UAW that it had not violated the terms of their bargaining agreement and that the union could not legally strike.
(1 dollar = 0.9 euro)
(This story has been republished to fix a typo in the headline.)