Stellantis US Crisis: Leadership Failure Demands a New Strategy

[Transcript]

[00:00:00] Jan Griffiths: Welcome to the Automotive Leaders Podcast, where we help you prepare for the future by sharing stories, insights, and skills from leading voices in the automotive world, with a mission to transform this industry together. I'm your host, Jan Griffiths, that passionate, rebellious farmer's daughter from Wales with over 35 years of experience in our beloved auto industry and a commitment to empowering fellow leaders to be their best authentic selves. Stay true to yourself, be you, and lead with Gravitas, the hallmark of authentic leadership. Let's dive in.

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What is happening at Stellantis? I know we're recording this in October and we're coming up into the Halloween season, but I'm scared. I'm scared for Stellantis. I'm scared for all the stakeholders around Stellantis, and quite frankly, I'm scared for what this means to the industry. Stellantis is imploding. And today I want to talk about three things: I want to talk about the role leadership and culture have to play in what we're seeing unfold right in front of our eyes. I want to talk about the impact on the industry, but perhaps more importantly, I want to talk about what we can do about it. I want to talk about a better way for Stellantis to approach the situation. And I want to end this with some crystal-clear CTAs, yes, calls to action that we're going to put out there for the board at Stellantis to sit up and pay attention right now. Now, joining me on this discussion, I could think of nobody better. than the leading expert, the recognized leading expert on creating collaborative agreements with a proven track record. Joining me back at the mic again today is Kate Vitasek. Kate, welcome back.

[00:02:56] Kate Vitasek: Thanks for having me. I'm excited to share a little information and insight that can help our good friends at Stellantis. Think about a better way to work with their suppliers, and now in the news, the UAW.

[00:03:10] Jan Griffiths: That's right, Kate. And you know, my audience, the automotive industry, we're a tough bunch up here, and they're probably thinking, "Well, who is this Kate Vitasek person and what has she done?"

[00:03:20] Kate Vitasek: Well, I'm a faculty member at the University of Tennessee. I've been there since 2003, and I study the Art, Science, and Practice of Highly Collaborative Win-Win relationships. So, I'm super lucky because my original research was funded by the Department of Defense and Air Force. And we got to study deals that worked. Why is the GE F404 engine maintenance in Jacksonville, Florida, so successful? And maybe the other GE engine contracts aren't so successful. And the answer is its relationships and collaboration, a conscious decision to create a culture and rules of how we work that we don't get into these adversarial tit-for-tats.

[00:04:10] Jan Griffiths: Yeah. Give us some examples, Kate, where have you seen some successes?

[00:04:14] Kate Vitasek: Actually, right behind me, one of the books you don't see in the video is called Vested: How P&G, McDonald's, and Microsoft are Redefining Winning in Business Relationships. And it really is about how these organizations that have a lot of power, they choose not to use their power but instead work with the other partners that also have power. So, think of it as one plus one doesn't equal two; it equals 11. And so, we're going to put collaboration at the front and center, and we're going to put our business problem across from us, and we're going to choose to work together to solve the problem. When we do that, when we create value, we share value. And since our first book came out in 2010, we've had 141 initiatives. So, buyers and suppliers, or for example, the Canadian government and their doctors, used our methodology to really what we call flipping, flip these relationships to win-win relationships. And the results are amazing. We actually covered two case studies, the Canadian government and Dell, in an HVR article. And one of my coauthors is Oliver Hart, a Nobel Prize-winning economist, and David Frydlinger, a Swedish attorney. So, what's this wacky supply chain professor, and a Swedish attorney, and a Nobel Prize-winning economist talking about? We're talking about changing the game in a better way. We call it Formal Relational Contracting, and it really changes the mindset and approach to how you work with your business partners or your employees and unions.

[00:05:56] Jan Griffiths: Yeah, and these companies have seen the impact to the bottom line, haven't they?

[00:06:02] Kate Vitasek: Absolutely, BP and Jones Lang LaSalle are actually one of my case studies that recently was nominated for a Supply Chain Innovation Award. They've had over 500 innovations together in the course of 3 years because now they're working together very strategically. Dell, when they first approached Vested with GENCO for reverse logistics, they reduced their cost structure by 50%, scrap reduced by 67 67%nd it really is about working together. And I think that we've lost that, right? It's about us vs. them instead of changing the game where we're working together.

[00:06:45] Jan Griffiths: Well, what I like about your work, Kate, is that not only are you doing it, you're not just out there talking about collaboration. You have a model. You have a structure. It has proven success, which is why I could think of nobody better to get on the show today to talk about what is happening at Stellantis. Now, bear with me because I'm going to walk through a timeline. When we talk about the situation at Stellantis, I want to make sure that we're all crystal clear on what that means. Back in 2021, I produced a podcast episode titled Stellantis WTF? 10 steps backwards. And that was all about the new terms and conditions that they were coming out with for their supply base. And Automotive News said this, "Stellantis has made controversial changes to its PO terms and conditions for 2022. They can force North American suppliers to reduce prices whenever they achieve any cost savings and remain locked into unfavorable contracts for as long as the automaker wants." okay. That didn't go down so well, Kate, as you can well imagine. So, there was a bit of a revolt in the supply base here in Detroit. So, in 2022, the WRI, which is the old Henke study, which is now known as the Working Relations Index owned by Plante Moran, and that is the index that measures the relationship between the OEMs, the carmakers, and the supply base, Stellantis in 2022 tanked to a rating of 128. Now, let me give you some perspective so people know what that means. Toyota was at the top at 345, and Nissan was at the bottom at 219, and Stellantis tanked all the way down to 128. No supplier has ever been that low. So, in June 2022, Martin Horneck, who at the time was leading purchasing for Stellantis North America, was gone. Then, they put in the role Marlo Vitous. Now, Marlo has been in the Chrysler-Stellantis system for a long time. They put her in the role. She has a lot of respect in the industry. She's known for being direct but also respecting supplier relationships. And in 2023, she actually increased that number to 145; still at the bottom, still not great, but she was making some progress. Then, in September 2023, we had the UAW strike, and more on that in a moment. In December of 2023, Mark Stewart, who was the COO of Stellantis, left the company, followed by a stream of executives. The VP of Retail Sales left after only two months, the Chief Customer Experience Officer resigned, and then the head of the Stellantis Software Business Development, Mamatha Chamarthi, she left, and many more. Stream of executives leaving. So, they replaced Mark Stewart with Carlos Zarlenga as the COO. And that was back at the end of last year. Then, in 2024, we started to hear about supplier litigation: Stellantis suing suppliers and suppliers suing Stellantis. What? And then, let's take a turn to the other side. Let's look at the sales side. Tavares made a decision to jack up selling prices, a move he now admits to be arrogant. And then, he charted a path to what I would call maniacal cost-cutting. He describes himself as a performance psychopath. So, his idea was to jack up the top line, increase the sales prices, and then cost-cut the hell out of everything else. Well, that didn't work. So now we have quality issues at Ram Truck. And Tavares clearly puts the blame on the workers. On August 15th, Reuters reported that Stellantis has been sued by their shareholders. Their shareholders! So now, at this point, you've got the people are mad, the workers are mad, the suppliers are mad, and now the shareholders are mad. And they said that the automaker defrauded them by concealing rising inventories and other weaknesses before posting disappointed results that causes the stock price to fall. In September, the Stellantis Dealer Council issued an open letter where they said they're sounding the alarm to the company's US executives. They've been sounding that alarm for more than two years now, warning that the course Tavares has set was going to run into disaster. Then, in September, we get new numbers, and we get cashflow projections that are horrendous to the tune of negative 10 plus billion dollars. Then, we get earlier this month, in October, we got some financial results that third-quarter sales dropped 20%. Jeep, Ram, and Dodge have declining market share. The share prices dropped 45% this year. Then, Stellantis came out and said they were going to sue the UAW because the UAW has claimed that Stellantis is not owning up to holding up their part of the agreement, going back to the UAW agreement last year of investing 19 billion into the business and jobs and facilities. And now, the UAW is threatening to strike, and Stellantis is saying, "Well, if you strike, I'm going to sue you for lost profits and a whole bunch of other things." If that wasn't enough, they're ousting their CFO, Natalie Knight, who's been there just shy of a year. They're using her as a sacrificial lamb. Again, blame, blame, blame. So, suffice it to say, Tavares, because let's be clear, it is Carlos Tavares, who is the CEO, who is directing all of these actions. He is blaming everybody in sight, and he is taking an aggressive stance with all of his stakeholders, with his dealers, with his people, with the UAW, and with his suppliers. Now, Kate, on the UAW issue, given all of that, you said clearly you actually wrote an article in November of last year, and you said on November 2023: Automakers and UAW strike ends, but likely only temporary. What's up, Kate? How could you foresee that? What were you thinking? Let's start off with the UAW, and then we'll talk about the other stakeholders.

[00:13:51] Kate Vitasek: It's quite interesting if you study the history of the UAW and the automakers, doesn't matter if it's Stellantis or who it is; there's just a suspicious cycle of distrust, right? On the UAW's website, they actually have a history of all of the strikes they have. And so, after the last settlement, you know, you go in, it's almost like they're gloating. Look, we won! We won! Right? And look at all that we did. And I think that's the problem. If it's Carlos at Stellantis if it's Shawn Fain at the UAW, whoever it is. We have this Win-Lose mentality. I have to win at your expense. I have to cost-cut at the expense of my suppliers. And they're playing the wrong game. I invite them to come to school. Come on down. We've got our executive education classes running on October 28th, our Vested class for three days, and our collaborative contracting class running on the last two days, the 31st and first. But what we teach people is how to flip from this Win-Lose game to a Win-Win game when they're negotiating and creating their contracts. And it really is about longterm thinking, right? So, we're very much about the short term as you spelled out in that, you know, recent history lesson, the recent history of Stellantis. And when we change, and we start to work together on solving real business problems, we think of it as creating value, and you share that value that's created. You really can all go home winners. And I say that because there's massive research, not just my research, but lots of other research on this topic. So, you look at the history of the thinking of collaboration, and it really dates back to the 1950s with John Nash studying the Nash equilibrium. He wins a Nobel Prize in 1994 for that. But then we have Oliver Williamson winning a Nobel Prize for transaction cost economics and talking about hybrid relationships. If we use the market and we think short term, buy, sell, the typical thinking is the market's going to bear the best results, but when we're in an integrated relationship, much like the union and the automakers, we have to think differently. That short-term thinking is a race to the bottom instead of a collaborative approach trying to think how to create a competitive advantage. And so, there where you live in Michigan, you have Robert Axelrod, very famous for his work on the evolution of cooperation. He developed and played a world-famous game, The Prisoner's Dilemma, and it showed unequivocally that always return cooperation for cooperation, right? When you retaliate, when I use power, it generates a mindset that the other party has to use their power. So, it races us to a lose-lose relationship. And then, lastly, I want to call out Oliver Hart, another Nobel Prize winner, who's a co-author of mine on the HBR article. And he talks about shading. Shading, you'd have to know what shading is to know, "Ooh, shady behavior," right? So, when someone has a power-based negative philosophy, and that gets rooted into the contracts, it opens the door for the other party to want to shade, to retaliate. And not necessarily in an all-out battle, but in gray zones; they can, contractual shading. And then, if that's still not working, then we get into hold up. And this is where the UAW and Stellantis are now; they've held each other up, and they feel like nothing on either side is being fair, so it results in disputes and lawsuits. But what we could do is change the nature of that from this power-based tit-for-tat that you clearly spelled out these bad behaviors among Stellantis. You can change that and invite the other parties, his suppliers, and the UAW, to think differently and to use our methodologies, our proven methodologies, to get people unstuck.

[00:18:24] Jan Griffiths: Yeah, we're missing the whole point, Kate. Stellantis is missing the whole point here. It's not about fighting with your stakeholders or winning with every single stakeholder; it's about working together to look at the real threat, which is the Chinese automakers.

[00:18:42] Kate Vitasek: Yeah, I agree with this. This is the scary part because if we don't get our act together, we're not going to have the next-generation auto-making industry. And so, we have to realize that ourselves and our suppliers, and our unions are not the enemy. They are our friends that are going to help us beat the competition. Instead of competing against our suppliers or at their expense, we need to compete with them against the real enemy.

[00:19:14] Jan Griffiths: We need Tavares or a senior leader at Stellantis to sit down and lock arms with Shawn Fain. You've told me many times that you've got to look at this, so you put the problem on the other side of the table. And I love that visual because that's exactly what we have to do here. We have to look at what it is going to take to move Stellantis into the future, recognizing that BYD, the Chinese automaker, is ready to take over. It's already poised to be the largest global automaker. It's already happening. So, stop fighting with your own people, Carlos, and look at the real problem, and look at what we can do to lock arms with your suppliers, with your dealers, with the UAW to look at this together. But what is it going to take Kate to get a leader like Carlos to do that?

[00:20:11] Kate Vitasek: I'll tell this little snippet from the Canadian government, the Vancouver Coastal Health, Island Health, and their doctors; the hospitalists were literally at rock bottom. They were at wit's end, three years without a contract. They can't sue each other because it's government. And the head hospitalist actually said, and I don't remember saying this in the meeting with them when we did the, what we call alignment workshops, she said, "Kate, you had that Southern accent that you quoted some country Western song. I never heard about it. You know, when you hit rock bottom, you have no place to go but straight up or sideways," and she said, "I don't want to go sideways. This is painful. This is awful." And we have a history and a culture of going sideways instead of straight up. And so, at their three-day alignment workshop, we put the elephant in the room: trust. It's the distrust that is causing us to not think differently. So, you start out, we have a wonderful research tool called the Compatibility and Trust Assessment. This is a bilateral 360-degree view of cultural compatibility and trust behaviors. So, it's digging in much deeper. I almost like thinking of the Henke study, and you take it a few steps down, several steps down, to understand what's causing the trust. So, you put that trust elephant in the room, and you start to realize that everybody thinks that they're not the problem that the other guy is, right? It's never me, it's you. There's actually a psychological bias called this. It's called the illusory bias, the self-serving bias. And so, we all think we're not the problem; it's the other guy. But in reality, it's this tit-for-tat behavior. When you do something I don't think is trustful, or that is power-based, and I don't think is fair, you put me in a corner to retaliate. So, my behavior is a direct result of your behavior. Then you don't like my behavior. So, then you take it to the next level. So, we were in this race to the bottom. And so, when you take a step back and, you realize that our human behavior, the process that we use, got us there. The process that we use can get us out of there. And that's what we've done at the University of Tennessee is: created a process we call the Vested Methodology. We call it vested because both parties should have a vested interest in each other's success. As you said, to lock arms, to beat the real competition, to beat our business problems, and when we do, that magic happens. But we don't know how to do it. We're stuck in dogmas and a process where we escalate our power. I don't like what you did, so I escalate my power. You know, I had in that Forbes article that Shawn Fain had done a video. It was a live stream, and he used the word power ten times; kill, right? It's like, of course, the automakers don't respond well to that, but I don't blame Sean at all. Sean has to use his power and the power of the union because the automakers, particularly Stellantis, are driving their power. And Jan, as you said, it's not just against the auto workers, which is in the news today, but the history of this with the supply base.

[00:23:44] Jan Griffiths: The supply base and their own dealers.

[00:23:47] Kate Vitasek: Their own dealers! These are people in the family! We're like turning on our own family. I would say think about a different process. I invite the Stellantis leaders and anyone. Come down; I'll give Carlos and Shawn a scholarship to come to our class to learn a different process. Now, if they don't want to use it, that's their problem, right? But if you aren't open to learning about Nobel Prize-winning research and a process like ours, that's winning awards. You're not at rock bottom yet.

[00:24:24] Jan Griffiths: Right.

[00:24:25] Kate Vitasek: And maybe they just need to be at rock bottom, but maybe these lawsuits are what's causing them to be at rock bottom, and they're at wit's end, and they'll decide to change the game.

[00:24:34] Jan Griffiths: And you're right. The scary part of this, Kate, is the impact this is going to have. You know, we talk about the Stellantis and UAW, we'll talk about these different stakeholders, but the ripple effect into the supply chain, into the communities that support the supply chain in the automotive industry. If Stellantis truly does implode, then that it's going to have a massive impact on this area, on the state, on all the people in the industry. And I do not want to see that happen. And I know that there's a better way. I know you have a better way that you have impacted these companies, but what are we going to do to get Stellantis' attention? So, let's talk about some calls to action here. I do not like the blame mentality, which clearly Carlos Tavares is doing. He reminds me, Kate, he was that skinny little kid that was picked on in the schoolyard, and now that he's grown up and he's got power, he's coming out swinging for everybody that comes at him, right? That's just what I think about it. I was listening to the Elon Musk biography, and he was that kid, you know, he was bullied at school, and now he comes out swinging. I would imagine Tavares was that kid in school. So, here he is, he's running this company. He has destroyed all of the relationships with all of his stakeholders. Destroyed all of them. He has now blamed his CFO and tossed her out as a sacrificial lamb. There is no other action that can be taken right now because the timing is against us. He needs to step down immediately, not tomorrow, not early 2026 when his contract is up. Right now, today, he needs to do the honorable thing and step down. The board at Stellantis needs to put somebody in the role who understands the collaborative approach, understands how to bring the stakeholders back into the fold, and focus on the real problem. What do you think? And that's a harsh call to action, Kate, but what do you think about that?

[00:26:38] Kate Vitasek: You know, I think if you're not willing to change, you got to change. I say change the people or change the people. And if the shareholders and all the stakeholders are involved and aren't willing to change, you're going to have to change out some of those key leaders and bring in others with a different mindset.

[00:26:57] Jan Griffiths: You can change the leaders underneath Tavares. You know, he came to Detroit just recently, and he changed some of the top leaders, but they still work for him. He is still the one calling the shots. He is still the one setting the strategy. So, we are out of time, Kate, we're done. This man needs to step down right now, and we need somebody to build this back up again. I see no other course of action with Stellantis right now. I just don't.

[00:27:26] Kate Vitasek: I have hope that if they open their minds, they would learn a better way. But if you don't open your minds and you're not willing, then you're absolutely right. We need to change the leaders. Change the people, or change the people.

[00:27:43] Jan Griffiths: This comes back to culture. Kate, you know, I left my corporate job six years ago to change the culture in the automotive industry. And I am out there day in and day out, beating the drum of authentic leadership, collaborative relationships, and working with your stakeholders. And then, you get this guy at the top of Stellantis who's doing the exact opposite; to say I'm mad is a mild understatement. My last episode was titled on Stellantis was titled "WTF." And that's exactly what I want to say to Carlos right now. He describes himself as a performance psychopath. He's proud of that, Kate. He's not open to change. I like to believe everybody's open to change, but we're out. What other advice would you have, CTA for the board at Stellantis, at this point?

[00:28:33] Kate Vitasek: I think they need to move swiftly. Anytime you have uncertainty, it makes people even more anxious. And so, getting in and making some decisive decisions, just bringing calmness back. Long-term, saying, this is where we're committing to not the decision for tomorrow. Take a pause. Move quickly, but take a little pause, bring everybody together, and create the goals for the future. And that doesn't take long. We do these things called an alignment workshop. You get all the right people in a room, you lock them in a room for three days, and the methodology that we teach you comes out with a statement of intent where all the players, the stakeholders, have a statement of intent for where they're going. And I think that's what they need. They need to bring the shareholders, the key representatives; they can't have them all in the room. You know there's thousands of suppliers. But bring the key leaders together and create a statement of intent for where they're going to take and repair what they're doing because it's a death spiral.

[00:29:41] Jan Griffiths: Yeah, it absolutely is. So, there's a call to action to the board at Stellantis: align the key stakeholders and join us. I'll join you, I'll come down, we'll go down to Tennessee, and we will do that alignment workshop with Kate with the Vested model. What could it hurt Kate? What could it hurt?

[00:30:00] Kate Vitasek: Exactly. And that's my philosophy: spend three days, and if you can't get out of the room aligned, then, you know, break it up. But what we've seen is that it always works. You put the right people in the room, and you challenge them; you give them the tools to think differently, and they excel.

[00:30:21] Jan Griffiths: Yeah, there it is. Well, Kate, thank you so much for joining me today. I think you've given Stellantis a lot to think about and our audience a lot to think about, and I'll do everything in my power to make sure that this episode gets through to the board and the key leaders at Stellantis. Thank you so much.

[00:30:39] Kate Vitasek: Thanks for having me again. And anytime I can share the research that we're doing, I love doing that because it really is game-changing.

[00:30:48] Jan Griffiths: Thank you, Kate.

Thank you for listening to the Automotive Leaders Podcast. Click the listen link in the show notes to subscribe for free on your platform of choice. And don't forget to download the 21 Traits of Authentic Leadership PDF by clicking on the link below. And remember, stay true to yourself, be you, and lead with Gravitas, the hallmark of authentic leadership.