Stellantis CEO Carlos Tavares is on a tear this week after first-half earnings were released. First, he threatens to give underperforming brands the boot. In case you lost count, the auto conglomerate has 14 brands in its portfolio so there’s bound to be some overlap. But not even big profit margin nameplates are safe. Next in Tavares’ line of fire is Ram. What it do? Build crappy trucks.
Before you come at me, I’m just quoting the boss, and it’s a matter of too much too fast. According to Automotive News, Tavares recently addressed quality issues at Stellantis’ U.S. manufacturing facilities. One particular thorn on Tavares’ side is the Sterling Heights Assembly Plant, which builds the Ram 1500.
“When there are too many cars in repair, at one point in time, you need to stop the main plant to do the job and clean the mess,” Tavares said. “Fortunately, we are now improving, but it has been painful.”
This is not unlike Ford’s effort to minimize recalls or Toyota finally acknowledging and replacing entire engines. The good news for Stellantis is that the vehicle problems are addressed and repaired before being sent to dealerships. The bad news is a trickle-down effect of slowed or delayed shipments, other issues arising during fixes, and a lowered direct run rate. The direct run rate refers to the number of vehicles built that require no rework once they’ve reached the end of assembly. But when repairs do need to be made, production costs go up, and the suits become very, very irritated. The direct run rate at Sterling Heights is said to be “not good.” Oops.
Quality issues aside, the retail mix and consumer perception haven’t helped Ram either. For example, when there was a demand for certain trim levels, particularly fully loaded models, none were available to be sold. The collateral damage was an increased inventory of vehicles people weren’t interested in. Oops again.
Pricing has also deterred potential buyers. Tavares said the company needs to improve communicating available incentives so customers focus less on the MSRP and more on the actual purchase price. In the U.S., the average Stellantis transaction price is $57,666, while the industry average is $48,389. Stellantis can drop prices, but it has to match reduced production costs. If its plants can’t build vehicles correctly the first time down the line, welp, no discount for you.
Stellantis reported a 48-percent decline in net income through the first half of the year. In North America specifically, revenue dropped by 16 percent. The (lack of) earnings report lead to Stellantis shares falling by as much as 10 percent. Numbers which Tavares said were “disappointing and humbling.”
“Protecting the margins means reducing the costs when the customers are asking for more affordability,” Tavares said. “That’s why we never stop working on costs. As long as there is inflationary pressures, we have to keep on doing that. People that think that we are making our money easily, they are wrong.”
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