Buy Them All Ice Cream

I’ve never seen the wheels come off a car company as fast as they have at Stellantis. A year ago, I was singing the praises of the company for having the highest operating profit margin of all the global full-line manufacturers and the highest profit-per-vehicle of all the non-luxury automakers. And then, in just a matter of months, the company did a complete faceplant.

So far this year sales are down 12%, revenue is down 14% and profits have plummeted 40%. That’s an alarming drop and it’s not a reflection of what’s going on in the marketplace. It’s a reflection of what’s going on inside the company.

The executive turnover at Stellantis, particularly in its North American operations, is like we’ve never seen before. Some skedaddled for better jobs elsewhere, several “retired” well before their retirement age and others were just given the boot. In fact, several of the execs who were hired to replace the booted ones have been booted out themselves.

You’d think this would reflect badly on the CEO, Carlos Tavares, yet Stellantis’s board of directors says it will hold onto him until his contract expires in January 2026. That means we’re going to see more of Tavares’s approach to running a car company: a fixation on slashing costs.

Mr. Tavares has shown that he’s very adept at cutting costs. Once Stellantis acquired Opel, he made it profitable in a year, after General Motors spent untold billions over several decades trying to do the same thing. He reacted to China’s global automotive expansion and EV cost advantage by joining up with Leapmotor to export cars from China, and even make them in Stellantis plants in Europe to avoid import tariffs. And he’s actively outsourcing engineering and staff functions to low-cost countries such as Morocco, Mexico, Egypt, India and Turkey.

All legacy automakers need to review their operations and figure out how to cut costs. But they also need to take a careful approach that balances profits against any measures of efficiency.

For example, back in the 1990s demand for the Jeep Grand Cherokee was so strong that the then-VP of Manufacturing, Dennis Pawley, decided to add a third shift to the Jefferson North assembly plant in Detroit. When I asked him if that wasn’t going to drive his labor costs higher and his Harbour Report productivity numbers lower, he shrugged. “Who cares?” he said. “The added variable profit I’m going to get out of that third shift more than makes up for all that.”

You see, when playing the automotive game, sometimes you have to tolerate a certain degree of inefficiency to maximize your profits. I think Tavares and his board have missed that point.

In the U.S., Stellantis’s dealers are in open revolt against the company. So is its union, the UAW. Suppliers absolutely despise how the company treats them. And, based on the handful of employees I’ve talked to, employee morale is at rock bottom.

As one young American engineer told me, “The feeling we get from them is that the stupid Americans don’t know what we’re doing and the French have to come in to straighten everything out.”

Keep in mind that up through last year, Stellantis’s North American operations –  the old Chrysler Group – accounted for 40% of the company’s sales, but 60% of its profits.

When you have such a well-oiled industrial machine, you don’t go in and start slashing costs, outsourcing work and getting rid of the very people who delivered those profits. No, you nurture that industrial machine. You cultivate the people. You buy everybody ice cream and ask them what you can do to help.

I hope Tavares can get this turned around. He’s clearly a very capable and smart executive. But I’m not optimistic. I’m afraid that in the crusade for cost efficiency, the machine that delivered the profits is getting disassembled.