Stellantis has achieved a cost reduction of 9 billion dollars thanks to the merger

AUBURN HILLS, Michigan. — stellantis is correcting what CEO Carlos Tavares described Thursday as “arrogant” mistakes made by himself and the company at the automaker's U.S. operations that led to sales declines, inflated inventories and investor concerns.

Tavares said the convergence of three factors led to the problems: not selling vehicle inventory quickly enough; manufacturing issues, specifically with two unnamed plants; and lack of “sophistication in the way we go to market.”

“We had a convergence of three things that should have triggered, on my part and no one else, an immediate working group to address those things,” he told media Thursday after the company's investor day at its North American headquarters. “When I say you're arrogant, I'm talking about me. I'm talking about the fact that I should have acted immediately by recognizing that the convergence of those three issues was there.”

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

Tavares did not elaborate on manufacturing or marketing 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 notable drops in revenue.

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

While sales have declined, 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 increased 31% from 2021 to last year. Its adjusted profit margin also increased, rising 0.4 percentage points over that period, to 12.8%.

Stellantis reported a 12% decline in revenue in the first quarter, citing lower sales and currency effects, even as net prices remained firm. The average transaction price for their vehicle in the United States was $57,266, according to Cox Automotive. That compares to an industry average of $48,389.

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

That amount is more than double initial expectations when the merger was announced in 2019, and up from the updated €5 billion in reductions expected within five years of the merger's completion, which formed one of the largest automobile manufacturers in the world.

Tavares said the largest reduction was achieved in the exchange and consolidation of engineering assets for the company's vehicles, followed by purchasing.

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

Since the merger was agreed in December 2019, Stellantis has reduced staff by 15.5%, or approximately 47,500 employees, through 2023, according to public documents. Additional job cuts this year involving thousands of plant workers in the United States and Italy have drawn the ire of unions in both countries.

Several Stellantis executives described the cuts to CNBC as difficult but effective. Others, who spoke on condition of anonymity because of possible repercussions, have described them as exhausting to the point of being excessive.

The cuts are part of Stellantis' strategic plan to increase profits and double revenues to €300 billion by 2030. The plan also includes goals such as achieving an adjusted operating profit of more than 12% and free cash flow industrial sector of more than 20,000 million euros.

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

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 return to investors in the form of dividends and buybacks.

The automaker anticipates that Jeep will be the company's main driver globally. Stellantis expects to increase global Jeep vehicle sales by 50% over the next three years, as the automaker attempts to leverage the quintessential American SUV brand to boost profits.

The transatlantic automaker said Thursday that it will expand production and sales to approximately 1.5 million units by 2027. To do so, the company will increase its offering of vehicles and powertrains.

“The Jeep brand can be a local hero anywhere,” Tavares said. “We're going to strengthen Jeep's manufacturing footprint.”