According to media reports, one of the world's largest auto manufacturers, Stellantis, is taking 'stringent measures' to strengthen its financial position, including internal austerity measures known as 'doghouse' aimed at stricter control of external expenses.

Meanwhile, Stellantis this week filed a lawsuit against the United Auto Workers (UAW) in federal court, accusing the union of baseless threats of a recent strike. UAW and Stellantis have disagreements over factory investments promised last year, including the reopening of a dormant plant in Illinois.

In the market, Stellantis's US stocks fell by about 17% this week, marking the largest single-week decline since late February 2022.

'Doghouse is back!'

According to The Wall Street Journal, in an email last week, Stellantis Chief Financial Officer Natalie Knight used 'Doghouse is back!' as part of the subject, instructing her finance team to rigorously review purchase requests from external suppliers to curb expenses.

The email explained that the 'doghouse' is a code name for stricter scrutiny and control of purchase requests. She noted: 'If we can be more disciplined, we can save significant expenses for the company.'

Nate also mentioned that these policy guidelines had been used by the company before, but did not specify the time. Stellantis stated that the term "doghouse" is not a new term, and in the past, it referred to projects that required special review.

Stellantis stated that this policy will not affect existing purchase requests, purchase orders, or invoices.

Analysts believe that this move indicates Stellantis is taking increasingly stringent measures to protect its financial reserves, as the company is taking costly steps to reduce car production and boost sales through promotions.

A few days after the CFO's directive, Stellantis lowered its financial estimates, warning that the difficult auto market conditions and costly measures to reduce high inventories in the North American market would have a greater impact on profits than previously expected.

Stellantis also significantly lowered its outlook for industrial free cash flow, an important indicator of the company's ability to pay dividends, buy back stocks, and reinvest in business. The company stated that it expects industrial free cash flow in 2024 to be between negative 5 billion euros (approximately 5.6 billion dollars) and negative 10 billion euros, while previous guidance was positive. However, the company's investor relations chief told analysts on Monday that despite a significantly negative industrial cash flow in 2024, the company will still have sufficient cash reserves by the end of the year.

Stellantis is also facing pressure from the UAW, with the UAW accusing the company of failing to make the job-creating investments promised in the 2023 labor contract. UAW President Shawn Fain threatened to strike over these plans, claiming they had earned this right in last year's negotiations.

In a federal lawsuit filed on Thursday, Stellantis stated that the union has no legal basis for a strike, citing that the contract gives the company flexibility to adjust plans based on market conditions.

"The Darwinian Era"

Ferns wrote in a letter to union members on Friday that the lawsuit was the latest move in a series of desperate actions taken by embattled executives, specifically referring to the embattled Stellantis CEO Carlos Tavares. Strikes are costly for auto manufacturers, especially after last fall's weeks-long strike that affected some production volumes at their US factories.

Knight emphasized in the email the challenges the company faces, the necessity to save cash, and recommended rejecting any expenditure requests unrelated to key business. "This requires taking tough measures to ensure our best financial performance in 2024, 2025, and beyond."

The email also mentions the 'Darwinian times,' a term used by Tavares to describe the immense pressure his company and competitors face in transitioning to electric vehicles.

Stellantis' cash depletion stems not only from reduced profits but also from its efforts to reduce excess inventory at US dealers. The company announced on Monday that it will reduce shipments of vehicles in North America by 200,000 before the end of the year. According to Bernstein analyst Daniel Roeska, this move could bring about approximately $4.4 billion in cash flow pressure in the short term.

The company reported on Wednesday that US third-quarter sales fell by 20%, continuing a streak of poor performance over several months.

Stellantis also stated that reducing its excess inventory is the right move in the long run, helping to better match vehicle output with demand.

The situation is grim for European and American carmakers.

Stellantis is not the only struggling auto company; Volkswagen, Mercedes, Aston Martin, and BMW have all recently revised their financial forecasts down.

Analysts believe that European and American automotive companies are facing a very severe economic situation, with high interest rates suppressing demand and electric vehicle projects consuming a large amount of funds. Many European and American companies are troubled by the climate policies aimed at reducing growth, which either inhibit economic output or make the manufacturing process overly expensive.

Looking at the broader automotive market, the MSCI World Automobiles Index, composed of major auto manufacturers such as Tesla, Toyota, Ferrari, General Motors, Mercedes-Benz, Honda, Ford, Stellantis, BMW, and Volkswagen, has been stagnant in the past two years, lower than its peak at the end of 2021.