The Fall of Stellantis
https://www.youtube.com/watch?v=IPL4ti2R4HA
Chrysler was once considered to be one of America’s big three automobile manufacturers - along with Ford and General Motors. with their Chrysler Jeep Dodge and RAM Brands they made gas guzzling muscle cars, SUVs and pickup trucks which have historically been very popular in the domestic Market. while Chrysler used to be one of the big three American automakers, the company is no longer American and no longer big. It is now owned by a European automobile conglomerate called stellantis. In the domestic American Market Chrysler’s market share has been free falling in recent years. they are now only the fifth largest automaker in the US. and their ranking is dropping fast. Jeep in particular has seen a tragic Fall From Grace. while it used to be one of the most iconic American brands, they are now widely ridiculed as some of the most poorly built, overpriced cars on the market. facing declining market shares, stantis revenue and profits are collapsing. The conglomerate stock price has fallen by than 50% within just the last year.
How did the European Auto conglomerate Stellantis was formed? Why they mismanaged Chrysler so disastrously? And what we can expect from the company going forward.
Up until Fiat Chrysler 2009, Chrysler was an independent company and one of the big three us automakers. they owned four Brands. their namesake Chrysler brand, Jeep, Dodge and RAM. Chrysler was founded almost a century ago in 1925 by Walter Chrysler. over the years Chrysler has made many different models - some of which became iconic. but today the Chrysler brand is a shadow of its former self. as of 2024, it has only two models available the Pacifica and the Voyager - both of which are minivans. next is the Dodge brand which Chrysler acquired all the way back in 1928. Dodge makes so-called muscle cars including the charger and Challenger. muscle cars have aggressive and bold designs and Powerful engines but are typically much cheaper than sports cars. muscle cars used to be very popular but their popularity has declined significantly in recent years. in 2023 Dodge discontinued production of both the Challenger and the charger. Dodge is currently in something of a transition phase. they now only produce the Hornet and Durango SUVs neither of which are very popular. in 20125 Dodge is releasing its next Generation charger. it will be available both as a fully electric and a gasoline powered car. next off is ram ram used to be a sub brand of Dodge, specifically for Dodge pickup trucks. in 2009 Ram was split off as its own brand. finally we have Jeep. Jeep started off as a military vehicle used by the US Army in World War II. it was made by a company called Willis Overland Motors. after the end of the war they transitioned to making civilian Vehicles. the Jeep brand changed corporate owners multiple times until was eventually acquired by Chrysler in
- Jeep makes a wide range of SUVs and
crossovers. as of 2023 Jeep is the most popular of the four Brands - accounting for approximately 42% of the company’s Us sales. Ram accounts for 36% of sales. Dodge 13% and Chrysler 9%. the global financial crisis and Great Recession of 2008 was a difficult time for all automobile manufacturers. but Chrysler was hit especially hard. in addition to the recession oil prices also spiked in 2008. Jeep and RAM cars are expensive gas guzzlers - especially with Jeeps. people buy them because they’re fun to drive and some of them have off-road capabilities. but in terms of getting from point A to point B they’re by far not your most cost effective option. Jeep and RAM sales collapsed in 2008 and 2009 causing significant losses for Chrysler. in 2009 Chrysler filed for chapter 11 bankruptcy protection. in order to protect manufacturing jobs, the bankrupt company received billions of dollars of bailouts from both the US and Canadian governments. while Chrysler was an American company they had and continue to have multiple factories in Canada. the American and Canadian governments wanted to offload their stakes in Chrysler as soon as possible. so in 2009, they sold a 20% stake to the Italian automobile company Fiat. Fiat is best known for making compact cars that sells mostly in Europe. in addition to its namesake brand Fiat also owns the Italian luxury brand Alfa Romeo and the sports car brand Maserati. in 2014 Fiat acquired the entirety of Chrysler. the combined entity was creatively named Fiat Chrysler automobiles. so why did Fiat want to acquire Chrysler? there were two main reasons. while Fiat was big in Europe their presence in the US was small. in fact, before they made their Strategic investment in Chrysler Fiat cars were not sold in in the US at all. Fiat wanted to leverage Chrysler’s distribution Network in the US to sell some of its European cars. remember that one of the main reasons that Chrysler failed was due to its cars being large and expensive gas guzzlers. Fiat had significant expertise in creating small cars with fuel efficient engines. they plan to bring this expertise to Chrysler. in 2011, Fiat reintroduced their namesake Fiat brand to the US market. Fiat cards are small, fuel efficient and affordable, with the base Fiat 500 starting at just $15,500 at the time. in 2013, Dodge introduced the compact Dodge Dart which started at just $16,000 and boasted an impressive 40 MPG fuel efficiency. this was the first Chrysler car made using fiat’s compact car platform. in 2014 Fiat Chrysler reintroduced their Alpha Romeo sports car brand back to the United States. Alpha Romeo had previously exited the US market in 1995 due to poor sales. the idea of selling affordable compact cars in the United States ended up being kind of a flop. Dodge had built his brand image around high power muscle cars the cheap and efficient Dart didn’t appeal to Dodge’s existing customer base. it also had a series of reliability issues and recalls. people who wanted a cheap car that can get them from point A to point B preferred established options like the Toyota Corolla which had a much better reputation for reliability. in 2016 Fiat Chrysler discontinued the Dodge Dart due to poor sales. the Fiat brand was also a flop in the US. in 2019 the company ceased production of its Flagship Fiat 500 in North America due to minuscule sales. the European automobile Market is very different from that in the US. in Europe streets tend to be narrower. people prefer small cars because they’re easy to drive on narrow and crowded city streets. the United States has a much larger land mass and a more spread out population. this allows for wider roads and more public parking lots. in such conditions it is easier to drive large SUVs and pickup trucks. something like the Fiat 500 which does very well in Europe is not compatible with the US market. Americans just prefer bigger cars. on the bright side, by the early 2010s the US economy started to recover, and oil prices declined to more normal levels. this led to a strong Rebound in sales of Jeep SUVs and Ram pickup trucks. Americans went back to buying the Big Gas czers they’ve always loved. due to the massive differences between the US and European automobile markets, a lot of the envisaged synergies between Fiat and Chrysler failed to materialize. despite this the merger was widely viewed as a success. the new Italian leadership reorganized Chrysler’s management structure. they reduced costs by eliminating unnecessary layers of middle management. this allowed the company to reduce costs in return to profitability. by the late 2010s things were looking pretty good. the company’s American brands were doing well in America - while their Italian Brands were doing well in Europe. by 2019 Tesla’s sales were starting to Surge and it became clear that electric vehicles are the future. Legacy automakers needed to invest billions, if not tens of billions of dollars over the next decade or so, to build production lines for Mass Market EVS. in 2019 Fiat Chrysler agreed to an all stock merger with the French automobile giant Peugeot. it took a full two years for the merger to gain regulatory approval. in 2021 Fiat Chrysler and peugeot finally merged. the combined entity was renamed stellantis, and was headed by peugeot’s CEO Carlos Tavarez. peugeot owns the Peugeot, citroen, opal, Vauxhall and DS automobiles Brands. if you live in the United States there’s a good chance you haven’t even heard of any of peugeot’s Brands, as none of them are sold in America. they mostly make compact cars that are popular in Europe, similar to Fiat. the merger did appear to make strategic sense. there are potentially a lot of synergies to be unlocked by integrating production of fiat’s Italian Brands and Peugeot’s French Brands. the Italian and French cars are pretty similar. so they can potentially share a lot of parts. the combined company also has more resources to invest in the development and production of electric vehicles. but there aren’t many synergies between Peugeot and Chrysler’s American brands. despite the lack of synergies, stallant CEO Carlos tarz still had plans to increase the profitability of Jeep and RAM. if you remember, back during the pandemic a shortage of computer chips caused problems in new car production. the decrease in Supply caused prices to Surge. this was particularly true in the United States where government stimulus programs helped prop up consumer demand. in the case of stellantis, their average selling price for cars in North America was about €30,500 in 2019. that’s equivalent to approximately $33,600. by 2022, the average selling price in North America had increased to 46,000 which was equivalent to approximately $48,000. even after the pandemic related supply chain issues were resolved, stellantis kept its prices High. to cut costs, stellantis also decided to lay off thousands of employ employes at Jeep and RAM factories in the US. stellantis management knew that the price increases would cause a decline in sales volume. so they laid off Factory workers in anticipation of reduced production. thanks to the price increases, stellantis was making far more profits for each car it sold. they hoped that this would offset any decline in volume. for a time, it looked like Stan’s strategy of raising prices and cutting costs was working. in 2022 they reported a record operating profit of €24 billion, which was equvent to about $25 billion US dollars. they made similar profits in
- while tamara’s strategy yielded
extraordinary profits in the short term, this would ultimately prove unsustainable. let’s look at the msrps of jeeps and Rams lineups. the cheapest Jeep is the compass which starts at $26,000. the most expensive is the grand Wagoner which starts at $92,000. Ram trucks range from $39 to $70,000. while Jeep customers are being asked to pay luxury price prices they’re not getting luxury quality. for example this video shows a brand new Jeep Wagoner which broke down and had to be towed. it had 44 miles on it. imagine spending $60 plus thousand dollars on a car and it breaks down literally on the first day. Consumer Reports tracks the reliability of all car models sold in the United States. of the top 10 worst cars three of them are Jeeps and four of them are stellantis products. while Jeeps have never been known for their reliability it does seem that the quality has decreased since the stellantis merger. since 2021 stellantis has laid off thousands of workers at Jeep and RAM factories. with the remaining staff stretched thin quality control inevitably took a hit. Jeep and RAM are iconic American brands. for many people their parents have always driven jeeps and they have always driven Jeeps. that’s what they’re used to. but as the prices increase and quality decreases eventually the value for money is so bad that formerly loyal customers are now looking at other options. Jeep and RAM dealerships are piling up with unsold cars that are two or even 3 years old. stellantis’s North American deliveries are in the process of collapsing. based on the current run rate, the company is on track to sell 1.6 million cars in North America in 2024 - an 18% decline versus the prior year. their sales in Europe and South America are doing fine. in Europe and South America, they mostly sell compact cars from the Fiat and peugeot Brands. the North America segment is responsible for an an outsized portion of stellantis’s profits. you can make a lot more profit selling $70,000 SUVs in America than you can make selling 20,000 compact cars in Europe. here we can see stantis is operating profit by region. we can see that after the merger North American profits surged. peugeot doesn’t sell any cars in America. the increase in profits is purely attributable to price increases at Chrysler’s existing Brands. now in 2024, sales volume and profits are collapsing. we can see this play out in Stan’s stock price as well. Wall Street cheered the company as profit surged. in May of 2024 the stock price reached almost $30. once it became clear that the extraordinary North American profits were not sustainable the stock price was crushed like a walnut under a sledgehammer. stellantis CEO Carlos Tavarez has been a disaster for the company. he was single-mindedly focused on maximizing short-term profits. but the long-term damage he did to the company is difficult to measure. Jeep and RAM have built up brand loyalty over the course of many decades. Tavarez cashed in this brand Equity to make a quick Buck. jeeps and Rams are now viewed as overpriced lemons. under pressure from the board of directors, tavarez resigned on December 1st 2024. stellantis is now run by an interim Council. whoever they choose as the next CEO will have a big job ahead of them.