Stellantis CFO Urges Staff to Implement "Drastic Measures" to Preserve Cash

Automobile Companies Face Economic Challenges

Several automobile companies including Volkswagen, Mercedes, Aston Martin, and BMW have recently reduced their forecasts. The broader economic outlook for Western automobile companies is bleak due to high interest rates, expensive EV programs, and decreased demand in China. Many of these companies are also grappling with climate change policies that either limit economic output or make the manufacturing process too costly, giving Chinese firms an unfair advantage in global markets.

Stellantis' CFO Calls for "Drastic Measures"

An article from the Wall Street Journal on Friday disclosed a leaked email from Stellantis Chief Financial Officer Natalie Knight. In the email, Knight informed her team of the need for "drastic measures" to bolster the finances of Jeep and Ram's parent company. She referred to the initiative as "The Doghouse," which involves strict scrutiny of purchase requests from external vendors to ensure maximum cost savings. Knight explained that this initiative could result in significant savings for the company.

Stellantis Reduces Margin Forecast

On Monday, Stellantis lowered its margin forecast for the year, suggesting that production would decrease while promotional incentives for customers would increase due to the competitive nature of the auto market. The company stated that the adjusted operating income margin is expected to drop to 5.5% to 7% this year, down from a previously forecasted double-digit percentage. It now anticipates a negative industrial free cash flow range of 5 billion euros ($5.6 billion) to 10 billion euros, a stark contrast to its previous positive cash generation guidance.

Stellantis Shares Decline

Stellantis shares in the US experienced a significant drop of about 17%, marking the largest weekly decline since late February 2022. Despite this, the head of investor relations at Stellantis assured Wall Street analysts that the company would have ample cash on hand by the end of the year, despite a "significantly negative" industrial cash flow in 2024.

Call to Preserve Cash and Cut Non-Essential Spending

Knight emphasized the need for her team to preserve cash and cut non-essential spending. She stated that drastic measures are necessary to ensure the best financial results for 2024, 2025, and beyond. She also mentioned the term "Darwinian times," a phrase previously used by Stellantis Chief Executive Carlos Tavares to describe the challenging transition to EVs that is currently pressuring the entire auto industry.

Stellantis Faces Cash Drain

Stellantis's cash drain is not only due to lower profits, but also its efforts to reduce a surplus of unsold vehicles in the United States. The company announced that vehicle shipments in North America would have to be reduced by 200,000 following a 20% drop in third-quarter sales in the US. Bernstein analyst Daniel Roeska informed clients that Stellantis is facing a short-term cash headwind of approximately $4.4 billion.

Auto Markets Overview

The MSCI World Automobiles Index, which includes major automakers such as Tesla, Toyota, Ferrari, GM, Benz, Honda, Ford, Stellantis, BMW, and VW, has remained relatively stagnant for two years, falling below the late 2021 peak.

Bottom Line

The current economic landscape for Western automobile companies is challenging, with high interest rates, expensive EV programs, and decreased demand in China. Stellantis, in particular, is implementing "drastic measures" to conserve cash and ensure the company's financial stability. With the entire auto industry under pressure, it's clear that these are indeed "Darwinian times." What are your thoughts on this situation? Feel free to share this article with your friends and sign up for the Daily Briefing, which is available every day at 6pm.