April 14, 2014 9:47 am

Peugeot to slash model numbers as it fights for profitability

MULHOUSE, FRANCE - MARCH 14: Workers assemble Peugeot 2008 SUVs at the PSA Peugeot Citroen assembly plant on March 14, 2014 in Mulhouse, France. Chinese automaker Dongfeng is scheduled to soon sign a deal to take a 14% stake in the French carmaker, which is Europe's second largest and has suffered in recent years due to falling demand.©Getty

PSA Peugeot Citroën will halve the number of its models and develop the Citroën division’s high-priced DS brand into a standalone unit as the struggling French group tries to restore profitability.

Europe’s second-largest carmaker, which has seen cumulative net losses of more than €7.3bn since 2012 amid the worst European car market for two decades, on Monday outlined a plan to put it “back in the race”.

Carlos Tavares, the former second-in-command at Renault who took over as chief executive at the end of March, promised to reduce the number of models from 45 to 26 over the coming years to improve margins.

“We want to focus the creative energy of the company on a more limited number of products,” said Mr Tavares. “The idea is that if you have fewer cars, you will do a better job, the cars will be more competitive.”

Downsizing model range is a trick that Mr Tavares pulled in Renault, with success. He cut the company’s product line-up in the UK by more than a third in 2012, and a year later the business turned its first profits since the recession.

Despite this, shares in Peugeot fell 5 per cent on Monday amid disappointment about performance targets, which were 2 per cent operating margins by 2018 and €2bn of cumulative operating free cash flow between 2016 and 2018.

“Tavares’ targets seem remarkably modest given that he’s already provided a long list of things he’s found to be wrong at PSA – and that he thinks he can fix,” said Max Warburton, analyst at Bernstein Research.

“It looks like a classic case of under-promising and hoping to over-deliver,” he added.

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The company’s pledge on Monday to further develop Citroen’s premium DS brand is likely to face stiff competition from Europe’s established luxury giants, Audi, BMW and Mercedes-Benz.

The group will also have to battle with the likes of Toyota’s Lexus and Nissan’s Infiniti, other premium spin-offs from mass-market players that have failed to crack the top tier, despite decades of investment.

Much of Mr Tavares’s plans will hinge on a continued recovery in Europe’s car sales, where Peugeot sells 60 per cent of its cars. EU car sales were up 7 per cent in the first two months of the year, after six straight annual declines.

In February this year Peugeot announced a €3bn capital raising rescue deal to sell 14 per cent stakes to the French government and China’s Dongfeng Motor Group in a deal that included greater industrial co-operation in Asia.

The company will use some of this extra cash to expand its presence in emerging markets, particularly in China, where it already takes 20 per cent of its revenue. Earlier this year it pledged to treble sales in China to 1.5m cars by 2020.

Shares in Peugeot are still up nearly 40 per cent this year despite the fall on Monday.

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