Stellantis CEO Tavares' Strategy Led to Lost Customers and Slumping Sales: What Went Wrong

Stellantis Faces Struggles in Europe Under Tavares’ Leadership: What Went Wrong?

Stellantis, the global automotive giant formed from the merger of Fiat Chrysler and PSA Group, faced significant challenges in Europe under the leadership of CEO Carlos Tavares, who announced his surprise resignation this past Sunday. While Tavares initially boosted Stellantis' profitability with aggressive cost-cutting measures and margin increases, these strategies ultimately led to a sharp decline in sales and a loss of core customers. The problem? Rising prices that alienated the mass-market buyers who have traditionally been the backbone of Stellantis' European market.

But what exactly went wrong, and how did Tavares' focus on higher margins result in such significant losses? Let’s dive into the details behind Stellantis’ struggles and the reasons behind Tavares’ departure.

Rising Prices Drive Customers Away: The Case of Elena Aragon

A clear example of the disconnect between Stellantis and its customers is 24-year-old Elena Aragon, a buyer from Cadiz, Spain. When Aragon went car shopping, she considered various brands, including Stellantis' Fiat and Peugeot. However, she ended up buying a Hyundai—a decision that highlights a growing trend of disillusioned customers abandoning Stellantis in favor of more affordable or well-equipped alternatives.

Aragon explained, “The basic models for Fiat and Peugeot didn’t appeal to me, but the more advanced ones with the features I wanted were too expensive.” Instead, she opted for a Hyundai i20, a compact car that included features like blind-spot sensors and a rear-view camera, all for €17,000 after a generous discount.

This decision is indicative of the larger issue at hand: Stellantis, under Tavares, hiked up prices across its Fiat and Peugeot brands, making them less appealing to price-sensitive customers, who were struggling with inflation and rising living costs.

The Price Hike Strategy: What Went Wrong?

Tavares’ strategy to boost operating margins was clear: increase prices on Stellantis' mass-market models. The result? A significant drop in sales and a noticeable loss of market share in Europe. According to JATO Dynamics, in September 2023, the average retail price of a Stellantis vehicle in Europe was about €40,000, well above the prices of other mass-market competitors. Brands like Renault, Mitsubishi, and Suzuki offered models averaging under €29,000, and cars from Chinese brands like MG were priced at €32,500.

Many consumers, like Aragon, were looking for affordable vehicles but found that Stellantis' entry-level models had disappeared or were priced out of reach. For example, Stellantis’ Lancia Ypsilon, once priced at about €17,000, now costs at least €25,000—a jump that alienated many long-time customers who associated Stellantis brands with affordability.

The Impact of High Prices on Stellantis’ Market Share

Tavares’ focus on profitability through higher margins worked to the company's advantage for a time, but it didn’t account for the core customers—the price-conscious buyers—that have traditionally driven sales for Fiat, Peugeot, and Citroen in Europe. As a result, Stellantis’ market share in Europe dropped by a third under Tavares, with Fiat’s penetration halving to just 1.8% and Citroen's shrinking to 2.2%. These losses reflect deep challenges for Stellantis as it struggles to maintain relevance in an increasingly competitive marketplace.

The company’s wide portfolio of 14 brands has also contributed to a lack of clear product differentiation. Fiat and Citroen are meant to target the affordable segment, while Jeep and Alfa Romeo cater to the premium space. However, many models overlap across segments, leading to confusion among consumers and sales cannibalization within Stellantis' brand portfolio.

Rising Competition from Asian Automakers

The increasing influence of Asian carmakers—especially Hyundai, Toyota, and Chinese brands like BYD—has also played a role in Stellantis’ struggles. These competitors are offering well-priced models with advanced features, challenging Stellantis' once-strong position in the European market. In fact, Chinese automakers now account for around 5% of European auto sales, with their market share expected to surge to 12% by 2030.

For instance, the Fiat 500, once a staple of affordable mobility, is now only available as an electric vehicle priced at around €29,000, which many customers view as too high for a compact city car. Meanwhile, competitors like Hyundai offer similarly sized vehicles at more competitive prices, making them more attractive to budget-conscious buyers.

The Struggles in North America: Jeep’s Price Surge

Tavares' strategy to boost margins wasn’t just a European issue—it also affected Stellantis' performance in North America. Jeep, traditionally known for its ruggedness and affordability, saw its prices skyrocket under Tavares' leadership. Models that once retailed for around $35,000 in 2019 were now priced above $60,000, with some models surpassing $100,000.

Erin Keating, an executive analyst at Cox Automotive, explained, “He chased profits. They shot the prices up of the vehicles, and I think what he forgot to do was to check, ‘Who is my U.S. consumer?’” Many buyers, especially in the U.S., were shocked by the sudden price hikes, leaving them feeling priced out of their favorite models.

The Road Ahead: Stellantis’ New Strategy and Challenges

With Tavares’ resignation, Stellantis faces a crucial turning point. The company has announced plans to launch 20 new models in the coming months, aiming for a 20% market share in the European Union. These models will include both electric vehicles and combustion engine models, like the Citroen C3, which will be priced at €23,000 for the electric version but less than €15,000 with a traditional engine.

However, Stellantis’ continued struggles in the face of fierce competition from Asian brands and its own internal challenges suggest that the road ahead may not be easy. The company will need to rethink its pricing strategy and address the lack of differentiation in its brand portfolio to regain consumer trust.

Final Thoughts: Lessons Learned from Tavares' Leadership

Carlos Tavares’ tenure at Stellantis may ultimately be defined by his push for higher margins and profitability—at the expense of core customers. While he succeeded in making the company more efficient and profitable in the short term, his price hikes and lack of affordable options alienated the very customers who once kept Stellantis strong. The lesson here is clear: in a competitive, inflation-hit market, pricing matters. If Stellantis wants to regain its footing, it will need to refocus on affordability and product differentiation, especially in light of the rising competition from both traditional and emerging automakers.