Stellantis CEO Carlos Tavares has been vocal this week following the release of the company’s first-half earnings. He has indicated that underperforming brands may face elimination, emphasizing that with a portfolio of 14 brands, overlaps are inevitable. Not even successful names like Ram are exempt from scrutiny, with Tavares attributing their issues to poor quality.
Tavares has expressed frustration over quality concerns at Stellantis’ U.S. plants, particularly highlighting problems at the Sterling Heights Assembly Plant, which produces the Ram 1500. He stated, “When there are too many cars in repair, at one point, you need to halt the main plant to clean up the mess. Fortunately, improvements are happening, but it has been a challenging process.”
This situation echoes similar quality control efforts seen at other automakers, such as Ford’s attempts to reduce recalls and Toyota’s acceptance of manufacturing faults. Stellantis has been proactive in addressing vehicle issues before delivery to dealers, yet this has resulted in delayed shipments and impacted production rates. The “direct run rate,” which measures the number of vehicles finished without needing repairs, is reportedly poor at Sterling Heights.
Additionally, Ram’s sales have suffered due to an unfavorable retail mix and poor consumer perceptions. During periods of high demand for specific trim levels, fully loaded models were unavailable, leading to an overstock of less popular vehicles.
Pricing strategies have also posed a challenge. Tavares emphasized the need for improved communication regarding available incentives to shift customer focus from the manufacturer’s suggested retail price (MSRP) to actual purchase prices. Currently, the average transaction price for Stellantis vehicles is $57,666, significantly above the industry average of $48,389. While Stellantis could lower prices, doing so requires aligning with reduced production costs—a difficult task if initial manufacturing is flawed.
The stark reality of Stellantis’ financials shows a 48% drop in net income for the first half of the year, with a 16% decline in revenue from North America alone. This disappointing performance has led to a decline in Stellantis shares by as much as 10%. Tavares referred to these figures as “disappointing and humbling.”
“Maintaining our margins means we need to cut costs as customers demand more affordable options,” Tavares explained. “That’s why we continually focus on cost management. With ongoing inflationary pressures, we must remain vigilant. Those who think we easily generate profits are mistaken.”.
