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Stellantis achieved $9 billion in cost savings from merger
Stellantis CEO Carlos Tavares speaks to the media on June 13, 2024, following the company’s investor day at its North American headquarters in Auburn Hills, Michigan.
Michael Wayland/CNBC
“We had a convergence of three things that should have triggered, on my part and no one else’s, an immediate task force to resolve these things,” he told the media on Thursday. after the company’s investor day at its North American headquarters. “When I say you are arrogant, I am talking about myself. I’m talking about the fact that I should have acted immediately, recognizing that there was a convergence of these three problems.”
During the investor day, Tavares and his top advisors extensively updated investors on the company’s operations and how Stellantis plans to achieve ambitious financial goals amid industry and economic uncertainty. The company also reconfirmed its 2024 guidance and promised to continue returning capital to shareholders in the future.
Tavares didn’t elaborate on manufacturing or market entry issues, but Stellantis’ vehicle inventory leads major U.S. automakers as the company has withheld incentives and cut marketing budgets. Stellantis’ U.S. sales fell 10% during the first quarter, leading to a notable drops in revenue.
In May, Cox Automotive reported Stellantis’ supply of Jeep and Ram brand vehicles was more than double the 76-day industry average. Stellantis was the only major automaker to report a decline in U.S. sales last year; its market share fell below 10%; It is Hyundaiincluding Kia, surpassed Stellantis sales for the first time.
Although sales have fallen, the company remains among the most profitable automakers in the world. Since the merger of Fiat Chrysler and PSA Groupe to form Stellantis in 2021, the automaker’s adjusted operating profit has increased 31% from 2021 to last year. Its adjusted profit margin also increased, rising 0.4 percentage points during that period to 12.8%.
Stellantis reported a 12% drop in revenue in the first quarter, citing lower sales and exchange rate effects, even with the maintenance of the net price. The average vehicle transaction price 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 that Stellantis achieved 8.4 billion euros ($9 billion) in cost reductions with the merger of Fiat Chrysler and PSA Groupe that created the company in January 2021.
This figure is more than double initial expectations when the merger was announced in 2019, and an increase over the updated 5 billion euros in reductions expected within five years of completion of the merger, which formed one of the world’s largest automakers.
Tavares said the biggest reduction was achieved in the sharing and consolidation of engineering assets for the company’s vehicles, followed by purchases.
Cost reduction has been a critical mission for the veteran automotive executive. Other cost-cutting measures included reshaping the company’s supply chain and operations, as well as reductions in headcount.
Since the merger was agreed in December 2019, Stellantis has reduced headcount by 15.5%, or about 47,500 employees, by 2023, according to public filings. Additional job cuts this year, involving thousands of factory workers in the U.S. and Italy, have drawn the ire of unions in both countries.
Several Stellantis executives described the cuts at CNBC as difficult but effective. Others, who spoke on condition of anonymity due to the potential repercussions, described them as tiring to the point of excess.
The cuts are part of Stellantis’ strategic plan to increase profits and double revenues to €300 billion by 2030. The plan also includes targets such as achieving an adjusted operating profit of more than 12% and an industrial free cash flow of more than 20 billion euros.
“We are not looking for our way; we know where we are going,” said Tavares, referring to the automaker’s “Dare Forward” strategic plan for 2030.
Stellantis reconfirmed its 2024 guidance, which included a double-digit adjusted operating income (AOI) margin, positive industrial free cash flow and at least €7.7 billion in capital returns to investors in the form of dividends and buybacks.
The automaker predicts that Jeep will be the company’s main driver worldwide. Stellantis expects to increase sales of Jeep vehicles globally by 50% over the next three years as the automaker tries to leverage the quintessential American SUV brand to boost profits.
The transatlantic automaker said Thursday it will expand production and sales to about 1.5 million units by 2027. To do so, the company will increase its vehicle and engine offerings.
“The Jeep brand can be a local hero anywhere,” said Tavares. “We will reinforce Jeep’s manufacturing footprint.”