Stellantis achieved $9 billion in cost savings from the merger

AUBURN HILLS, Mich. Stellantis is correcting what CEO Carlos Tavares described Thursday as “arrogant” mistakes by him and the company in the automaker’s U.S. operations that led to declining sales, bloated inventories and investor concerns.

Tavares said the convergence of three factors led to the problems: not selling vehicle inventory fast enough; production issues, particularly with two unnamed factories; and lack of “go-to-market sophistication.”

“We had a convergence of three things that should have prompted, by me and no one else, an immediate task force to address those things,” he told the media Thursday after the company’s investor day at its headquarters in North America. “When I say you are arrogant, I speak for myself. I’m talking about the fact that I should have acted immediately, realizing that the convergence of these three problems was there.”

During the investor day, Tavares and his top lieutenants updated investors extensively on the company’s operations and how Stellantis plans to achieve ambitious financial goals amid industry and economic uncertainty. The company also reaffirmed its guidance for 2024 and pledged to continue returning capital to shareholders going forward.

Tavares did not elaborate on production or go-to-market issues, but Stellantis’ vehicle inventory tops the major U.S. automakers as the company has held back incentives and cut marketing budgets. Stellantis’ US sales fell 10% during the first quarter, leading to a significant decline in revenue.

In May, Cox Automotive reported that daily supply of vehicles in Stellantis’ Jeep and Ram brands was more than double the industry average of 76 days. Stellantis was the only major automaker to report a decline in U.S. sales last year; its market share fell below 10%; AND Hyundaiincluding Kia, surpassed Stellantis for the first time ever.

While sales have fallen, the company remains among the most profitable automakers globally. Since Fiat Chrysler and PSA Groupe merged to form Stellantis in 2021, the automaker’s adjusted operating income rose 31% from 2021 to last year. Its adjusted profit margin is also on the rise, rising 0.4 percentage points over that time period to 12.8%.

Stellantis reported a 12% drop in revenue in the first quarter, citing lower sales and foreign exchange effects, although net price was held steady. The average transaction price of its vehicle in the U.S. was $57,266, according to Cox Automotive. This compares to an industry average of $48,389.

As part of the event, Tavares said Stellantis has achieved 8.4 billion euros ($9 billion) in cost reductions from the merger of Fiat Chrysler and PSA Groupe that created the company in January 2021.

This amount is more than double initial expectations from when the merger was announced in 2019, and an increase from the updated €5 billion in reductions expected within five years of the completion of the merger, which formed one of the largest producers of vehicles in the world.

Tavares said the largest reduction was achieved in the divestiture and consolidation of the company’s vehicle engineering assets, followed by acquisitions.

Cutting costs has been a critical mission of the veteran auto executive. Other cost-saving measures have included reshaping the company’s supply chain and operations, as well as headcount reductions.

Since the merger was agreed to in December 2019, Stellantis has reduced its workforce by 15.5%, or roughly 47,500 employees, through 2023, according to public filings. Additional job cuts this year involving thousands of factory workers in the US and Italy have drawn the ire of unions in both countries.

Several Stellantis executives described the cuts to CNBC as tough but effective. Others, who spoke on condition of anonymity because of the potential consequences, described them as exhausting to the point of being overwhelming.

The cuts are part of Stellantis’ strategic plan to boost profits and double revenues to 300 billion euros by 2030. The plan also includes targets such as achieving adjusted operating profit of more than 12% and free cash flow of industrial money of more than 20 billion euros.

“We’re not looking for our way; we know where we’re going,” Tavares said, referring to the automaker’s 2030 Dare Forward strategic plan.

Stellantis reaffirmed its 2024 guidance that included a double-digit adjusted operating income (AOI) margin, positive free cash flow and at least 7.7 billion euros in capital return to investors in the form of dividends and buybacks.

The automaker predicts that Jeep will be a major driver for the company globally. Stellantis expects to increase sales of Jeep vehicles globally by 50% in the next three years as the automaker tries to use the flagship American SUV brand for increased profits.

The transatlantic automaker said Thursday it will expand production and sales to roughly 1.5 million units by 2027. To do so, the company will increase its car and engine offerings.

“The Jeep brand can be a local hero anywhere,” Tavares said. “We will strengthen Jeep’s manufacturing footprint.”