Peugeot Vows ‘Solid Rebound’ After Profit Pummeled

French carmaker PSA Group vowed to bounce back after plunging profits and warnings on 2019 sales caused an unprecedented shareholder revolt against its strategy.

Under a new strategic plan unveiled last year, PSA admitted the losses it posted in 2017 were “not acceptable” and promised a return to profitability by 2020.

Now, Chief Executive Carlos Tavares has spoken of a “solid recovery” and promised that two thirds of the total savings and investments will be reinvested into the business.

“There is no improvement as expected in Europe for the next years,” Tavares said.

“Despite that, we are confident in a solid recovery,” he added.

But the plan, which will see PSA dump its non-core activities and win more market share, risks costing the group billions in pension costs, and also sees it returning to Russia just over a year after the Dnieper River flooded local factories.

The firm has not made a profit since 2014, and raked in almost €1 billion in dividends from its Dongfeng and Peugeot-Citroen businesses in 2018.

The overhaul – which also involves a major exit from sportscar making – has been pushed by French sovereign wealth fund APFP, but other investors have held out as they claim to not be persuaded by PSA’s promises, including the army of finance professionals at corporate raider-turned-investor Vincent Bollore.

Peugeot is fighting to reduce production costs as its costs of goods is nearly twice as high as those of arch-rival Volkswagen. It also says that new software to diagnose faults on millions of vehicles, combined with higher efficiency plans, will help it get back on track.

The company is introducing an EV section to the Chinese version of its Peugeot brand in a bid to woo more buyers.

But industry experts remain cautious over the company’s recovery, with some expecting a flat 2019.

“They are [just] bringing more automation and reducing jobs – that is all,” said one industry expert.

The French firm’s plans do not include new product innovation or investment in the car production industry outside of China, which will disappoint some analysts.

Some of the changes are already being implemented, including the rationalization of the company’s vehicle roll out, “eliminating complexity” and saving €7-9 billion in capital expenditure.

But the plan still leaves the group’s earnings capacity weaker than a year ago, reducing the potential for a surprise announcement.

“Overall, very positive and another thing very, very positive – I think this is one of the most impressive turnaround plans,” commented Marcello Mastropasqua, global chief investment officer of Banca IMI Wealth Management.

“When you look at the execution, both the acceleration of the efficiency improvement and the focus on the digital transformation, which I think is another massive amount of focus, I think that is quite solid and basically sets this company on a path that it has the capability and will be able to exit [its heavy reliance on] European sales of cars.”

Related posts

Leave a Comment