Stellantis, one of the “Big Three” US automakers, announced this week that it will extend buyout offers to around half of its 12,700 salaried US employees. The company said that the voluntary separation packages aim to cut costs and navigate industry-specific and macro headwinds as the automaker progressively transitions its portfolio to electric vehicles (EVs).

Stellantis said that 6,400 non-unionized office and technical workers are eligible for the buyout deals, which include financial incentives based on their years of service. Recipients can choose to leave the company or retire early under the program.

The move comes amid the growing economic uncertainty that is impacting auto sales. Stellantis reported a 1% decline in US sales for the first nine months of 2023. Rising interest rates have deterred buyers from purchasing new vehicles as borrowing costs have risen while they have also increased costs for automakers.

Preparing for Electrification Requires Making Changes to Stellantis’ Operations

In a statement, Stellantis framed the buyouts as part of its ongoing preparations for an EV future. The company plans to launch battery-powered models of its Ram pickup and Jeep SUVs in 2023.

Stellantis says that, by adjusting its cost structure, it will now be able to orchestrate a smooth transition as EVs arrive. The buyouts will purportedly help right-size staffing across its combustion-engine and electric lineups.

Industry analysts note that automakers are looking to cut legacy costs as they ramp up EV spending. Shedding older employees via buyouts can offer savings as companies hire new talent suited for electrified and software-centered vehicles.

This is the second major buyout program from Stellantis this year. In April, the company made voluntary separation offers to 2,500 salaried workers and 31,000 union employees in the US and Canada.

The company did not disclose how many employees accepted those previous buyouts. However, the new round suggests that Stellantis continues to seek significant reductions of its white-collar personnel to respond to today’s challenging market conditions.

Other automakers are also utilizing buyouts to cut staffing amid rising costs. For example, both General Motors and Ford (F) have each trimmed thousands of salaried jobs during this year through voluntary buyouts.

Stellantis Compensates Long-Serving Employees with Up to 12 Months of Base Pay

For eligible employees who opt in, the Stellantis buyouts provide severance pay on an ascending scale based on years of service:

  • 5-9 years: 3 months of base pay.
  • 10-14 years: 6 months of base pay.
  • 15-19 years: 9 months of base pay.
  • 20+ years: 12 months of base pay.

The structure gives long-serving employees the strongest incentives to take a deal. Experienced workers will likely make up much of the staffing that Stellantis sees as redundant amid its ongoing EV push.

Workers have until December 8 to decide if they will accept the buyout offer. The company did not reveal how many takers it expects or how much money the program is aiming to save.

Uncertain Auto Market Conditions Push Automakers to Cut Costs

light vehicle sales in the US as of August 2023

In its statement announcing the buyout plan, Stellantis cited “challenging market conditions” facing the auto sector as justification for these offers. Rising interest rates have made new vehicle financing more expensive for consumers.

The average new car monthly payment rose above $700 in Q3 2023, pricing many buyers out of the market. Automakers have also been forced to increase prices to cover additional or rising supply chain costs.

Although US light vehicle sales have recovered slightly compared to 2022, the uncertainty regarding how macroeconomic conditions will evolve in the near future is prompting automakers to maintain a cautious approach to hiring and expanding their installed capacities and overhead.

Stellantis’ financial results have remained strong despite the downturn. However, the company is clearly anticipating a scenario of slower sales around the corner. Reducing salaried headcount through voluntary buyouts provides payroll savings as uncertainty persists.

Stellantis Keeps Pushing to Transition to an EV-Centered Strategy by 2025

Along with immediate market concerns, Stellantis emphasized that the buyouts will support its electrification strategy. As an auto industry laggard, Stellantis is playing catchup in EVs with a $35 billion investment plan through 2025.

The company aims to drive efficiency gains to help fund its ambitious EV rollout. Transitioning legacy salaried staff to retirement while bringing in new EV talent could benefit this push.

Also read: Stellantis Announces $3.2 Billion EV Battery Plant

However, the auto industry is deeply sensitive to economic cycles. If market conditions unexpectedly improve, the firm may eventually need to rehire some of this staff. Stellantis will need to balance cost-cutting imperatives with maintaining a sufficient number of skilled workers across its vehicle lineups.

For eligible employees mulling a buyout offer, the decision will come down to weighing an immediate payout against staying the course through an uncertain transition. Either way, Stellantis appears to be determined to put itself on a firmer financial footing in the years ahead.