Peugeot to rebound with better prices

Published Feb 20, 2014

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Paris, France - PSA Peugeot Citroen's new boss is a man with a plan. Incoming CEO Carlos Tavares promised a back-to-basics turnaround as the troubled carmaker unveiled a French-backed rescue deal with China's Dongfeng on Wednesday, along with another multibillion-euro loss.

Tavares said he saw “huge room for improvement” as Peugeot announced a 3 billion euro (R45 billion) fundraising that brings new leadership, more time to recover and an end to two centuries of family control.

While the deal marks the end of an era, with Thierry Peugeot stepping down as the dynasty's last chairman, it may also clear the decks for a deep review of the group's business practices and corporate culture.

“It's a return to fundamentals,” Tavares said from a podium shared with outgoing CEO Philippe Varin.

“Our challenge is to be the best of the Europeans in terms of (our) manufacturing and distribution model, which frankly is not the case today,” he told analysts and reporters.

PRODUCT PLANS

Peugeot will source parts more competitively, accelerate the development of Citroen's premium DS line into a standalone brand and drop some of the group's current 60 models to cut costs and improve pricing, he said.

The former No.2 to Renault boss Carlos Ghosn also promised measures to tame Peugeot's losses in Latin America and Russia, to be unveiled with a new mid-term plan in April.

While at Renault, Tavares was credited with narrowing the pricing gap with European market leader Volkswagen.

“He comes with a very good track record and seems already to have identified clear areas of improvement by benchmarking Peugeot against Renault-Nissan,” said Stuart Pearson, a London-based analyst with Exane BNP Paribas.

Peugeot is currently being kept afloat by a 7 billion euro (R105 billion) state guarantee to its car loans arm, but that expires next year. Along with the Dongfeng deal, the company announced plans for a lending venture with Banco Santander in the region.

It also posted a 2.32 billion euro (R34.8 billion) net loss and warned on Wednesday that it may not stem the red ink until 2016, a year later than initially promised.

PLAYING CATCH-UP

Under family control, insiders say Peugeot has been slow to adapt to competitive threats, missing opportunities to deepen partnerships with BMW, Fiat, Toyota and Mitsubishi Motors.

The firm will now use its new capital to catch up in hybrids, low-cost cars and Mediterranean markets where it lags behind the likes of Renault-Nissan and Toyota, Chief Financial Officer Jean-Baptiste de Chatillon said.

“Everything is in place to give Peugeot a new lease of life as a major international carmaker,” Chatillon said. “We have the products, the teams, the know-how, and now we have a new balanced and stable ownership.”

Under their framework deal, Peugeot and Dongfeng pledged to expand their existing joint venture with new models and a sales target of 1.5 million vehicles for 2020, generating 400 million euros of savings for the French partner.

The alliance will also create a major new research and development centre in China and a sales venture to export their cars to other Southeast Asian markets, the companies said.

Reuters

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