Chrysler Group has had a long history of failed European partnerships. It started in 1998 via a merger with Daimler-Benz, which fell apart in 2007 amid cultural incompatibilities and poor synergy.
By 2014, what remained of Chrysler merged with the Italian automaker Fiat to make Fiat Chrysler Automobiles. This conglomerate finally merged with France-based PSA Group and is now known as Stellantis(NYSE: STLA), headquartered in the Netherlands.
It's still unclear if Stellantis will meet the same fate as Chrysler's other European partnerships. But there's a growing cause for concern. Let's explore three reasons why it might be time to sell the stock.
Poor pricing strategy
According to Cox Automotive, Stellantis raised prices more than any other automaker in recent years -- and that's despite higher interest rates, making car buying more unaffordable than ever. The Jeep brand may have been affected the most.
Online seller CarEdge estimates that Stellantis has jacked up prices on the Jeep a whopping 61% since 2018. In addition, the once-affordable Dodge brand has also become a status symbol, with performance trims, such as the Challenger Hellcat SRT, starting at almost $72,000.
Excessive price hikes (without corresponding increases in quality) only work if a product has enough brand appeal to overcome the reduction in value for money. Chrysler brands, like Dodge and Jeep, are vulnerable to these tactics because they arguably enjoy cult followings in their target audiences. However, even brand stickiness has its limits.
The North American business is eroding
Stellantis' poor pricing strategy is having a devastating impact on its North American business, which represented more than half of its adjusted operating income (AOI). In the first half of 2024, North American AOI fell by a whopping 46% year over year to $4.37 billion because of a combination of lower volumes and a weaker product mix. This is part of a longer-term trend affecting all of Stellantis' U.S. brands.
As of 2023, Jeep sales have dropped 34% (to 643,000 units) from their all-time high of 973,000 units in 2018. Chrysler's lineup has fallen to just two vehicles: the Pacifica minivan and the 300 (discontinued this year).
Meanwhile, Dodge will discontinue its entire line of V8 engines to focus on more environmentally friendly designs, like V6s and electric vehicles (EVs). It's unclear how well its muscle-car audience will respond to this change in focus.
Image source: Getty Images.
While it's impossible to know from the outside, Stellantis may be facing significant cultural incompatibilities between its American and European leadership, particularly CEO Carlos Tavares, who led the French automaker Renault before it was folded into Stellantis.
Tavares doesn't have much experience with the U.S. market, and the company has recently begun losing American talent, such as Dodge CEO Tim Kuniskis, who was responsible for the brand's revival with V8 performance models like the Hellcat, Scatpack, and Demon. His departure coincides with the discontinuation of these engines and could suggest a lack of faith in the company's move toward V6s and EVs.
Labor disputes and difficult decisions
Pop culture may say that shareholders make tons of money while others do all the work. But the reality is much more complicated. With Stellantis' stock price down 3% over the last five years, the company's workers have arguably made more income from the company than its actual stockholders over this time frame. And ongoing labor disputes could make the situation worse.
In September, Reuters reported that the United Auto Workers (UAW) is planning multiple U.S. strikes against Stellantis shortly after a massive strike in 2023, which cost the automaker $832.1 million in lost profit. The latest round of union grievances include alleged failures to honor commitments to invest in the U.S. and possibly plans to move Dodge Durango production outside the country.
Stellantis has fired back with several lawsuits accusing the union of violating its side of the latest contract reached last fall. While the automaker may be forced to downsize, the UAW will make it difficult for management to take the tough steps necessary to fix the situation. Investors may be left holding the bag.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
