Stellantis CEO Carlos Tavares at the production line of the new Peugeot e-3008 and e-5008 electric car at the Stellantis car factory in Sochaux, France on Oct. 3.FREDERICK FLORIN/AFP/Getty Images
Gus Carlson is a U.S.-based columnist for The Globe and Mail.
What a mess it is. Stubbornly high luxury-level prices on core workhorse brands like Jeep, Dodge and Ram have turned away loyal buyers. Bloated inventories have clogged North American dealer lots, reaching almost half a million vehicles in the summer. The company’s stock has lost almost half its value this year, and thousands of workers face layoffs.
There’s even word that the company might need to shed some of its signature brands, which include Maserati and Chrysler, to right the listing ship.
Not at Stellantis STLA-N. The No. 4 automaker’s embattled chief executive, Carlos Tavares, intends to remain in his position until his contract expires in 2026, as if he is doing stakeholders a favour by staying on to attempt a turnaround from a crisis he created by failing to understand the tolerances and sensitivities of car buyers in the company’s most lucrative market.
For the man heralded as a visionary dealmaker for combining Peugeot and Fiat Chrysler to create Stellantis, Mr. Tavares’s current fumble is remarkable. The company stunned investors last month with a dire profit warning tied directly to the failing health of its perennial cash cow, the U.S. market, where sagging sales and shrinking margins of Jeeps, Dodge and Ram pickup trucks reached critical condition.
U.S. sales fell 20 per cent in the third quarter, a stark contrast to industrywide sales that showed modest growth. As inventories at North American Jeep, Dodge and Ram dealers rose to record levels, investors’ concerns drove down the share price.
Yet the valley of death between the marketplace reality and the arrogance of the Stellantis C-suite did not seem to humble Mr. Tavares, who initially kissed off the U.S. problems as a “small operational error.”
The real problem is that Mr. Tavares forgot a most basic rule of business: Know what value means to your customers and price your products accordingly.
Like many automakers, Stellantis raised prices during the COVID-19 pandemic as supply chain problems caused inventory shortages. The increases were beyond the reach of even the most loyal customers for its popular North American models, who had always looked to those brands for reliable, value-priced products.
When the company was slow to lower prices when shortages eased, customers looked elsewhere for value. But since the company had scrapped many of its entry-level models and did not invest adequately in popular mid-market models, many buyers found it difficult to stay in the Stellantis family.
The disconnect opened the door for competitors. For example, Ford Motor Co.’s Bronco SUV model was able to gain ground among Jeep buyers with discounted pricing and targeted marketing.
The Stellantis tone-deafness on pricing its bread-and-butter North American brands evokes memories of the ill-fated Volkswagen Phaeton, the German carmaker’s failed attempt at the luxury market 10 years ago. The car, which retailed in North America at US$70,000, had everything luxury car buyers wanted – except a luxury badge. Prospects who typically bought BMWs or Audis didn’t see the Phaeton’s VW marque as luxe enough, and loyal VW buyers couldn’t afford it.
Sales were so low in both Europe and North America, the model was quickly scrapped, even though the car was hailed by enthusiasts for its quality and design features.
Since the Stellantis situation has grown from a small operational error to a full-blown crisis, Mr. Tavares has blamed everything from increasing competition from cheap Chinese imports to rising labour costs for what will likely be painful moves to fix Stellantis’s problems. While he has vowed that the U.S. issues will be solved by the end of 2024, the solution will come at a price. This week, the company announced 1,100 layoffs at a plant in Michigan and plans to explore production in low-cost Mexican factories.
Among the many lessons in Stellantis’s spin-out: Even leaders with stellar reputations like Mr. Tavares should be careful about resting on their laurels. In a highly competitive and constantly changing business like the auto industry, that’s a risky strategy.
And don’t let hubris drive your marketing and sales strategy. Remember who your customers are, why they buy your products and how much they are able to pay for them.
Any leader who hasn’t learned that shouldn’t feel entitled to stay, no matter what his contract stipulates.
