Stellantis Becomes Latest Automaker to Warn on Deteriorating Market — 2nd Update

By Dominic Chopping

Stellantis cut its full-year guidance Monday, becoming the latest European automaker to warn on the increasingly tough car market.

The company--which houses brands such as Chrysler, Citroen, Dodge, Fiat, and Peugeot--said it is accelerating plans to trim inventory levels in the U.S. as the global industry continues to deteriorate and competition intensifies.

Shares approached a two-year low in early European trade after falling over 14%.

The market for vehicle sales this year has dropped just as supply has increased and as the transition to electric vehicles is becoming increasingly competitive, especially as Chinese manufacturers fight for share and drive prices lower.

In the U.S., dealers of the company's Jeep and Ram brands in particular have complained about an inventory buildup on their lots due to the company's aggressive production targets and high sticker prices, while rivals have been offering deep discounts. The company last month outlined plans to lay off around 2,450 factory workers in Michigan after deciding to end production of a Ram model.

"Deterioration in the global industry backdrop reflects a lower 2024 market forecast than at the beginning of the period, while competitive dynamics have intensified due to both rising industry supply, as well as increased Chinese competition," it said in a statement Monday.

The U.S. auto market is coming under increasing pressure as it corrects from post-pandemic highs. A lack of inventory helped prop up prices in the immediate aftermath of the pandemic, while cheap credit allowed U.S. customers to keep paying the higher prices for new vehicles. But inventories have risen and higher interest rates have eroded consumer purchasing power, hitting the company's profit margins and market share in the region.

The automaker's share of the North American market fell to 8.2% in the first six months of the year, from 10.0% in the same period a year earlier, according to company-compiled estimates. Its adjusted operating margin in the region fell to 11.4% from 17.5%.

After previously presenting plans to start reducing production while gradually adjusting prices, the company said Monday it is now targeting no more than 330,000 units of dealer inventory in the U.S. by year-end 2024, bringing forward the target date from the first quarter of 2025. It will reduce the number of vehicles it ships to the U.S. by over 200,000 in the second half of 2024, It earlier expected to cut shipments by 100,000 units compared to the prior year.

The company will also increase incentives on 2024 and older model year vehicles while adjusting costs and capacity.

Stellantis now expects to report an adjusted operating income margin of between 5.5% and 7.0% in 2024, down from the double digit figure it expected previously. Industrial free cash flow is now expected to be between negative 5 billion to 10 billion euros ($5.58 billion-$11.17 billion), from a positive figure previously.

In 2023, the company reported an adjusted operating income margin of 12.4% and industrial free cash flow of 12.86 billion euros.

Bernstein analysts said in a note to clients that Stellantis management had already cautioned a double-digit margin would be hard to attain, so Monday's warning confirms just how difficult the situation is at the company, with the new guidance pointing to a very weak second half of the year.

"Stellantis was criticized for seemingly not acting fast enough so this begins to address that complaint but the scale of the hit to margins far exceeds our already reduced expectations," the analysts said.

The Stellantis warning comes as Aston Martin also cut its full-year profitability guidance Monday, saying supply-chain disruptions and weak demand in China will hurt delivery volumes, while Volkswagen on Friday cut its sales and profitability forecasts for the year. Mercedes-Benz recently cut its margin guidance for the second time in under two months and BMW has also lowered its sales and earnings targets in recent weeks.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

September 30, 2024 05:43 ET (09:43 GMT)

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