Peugeot chief gets taste for a bumpy ride

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Philippe Varin says that he enjoys tackling crises. Given the dismal figures on European car sales published on Tuesday that is probably just as well.

Before taking the wheel at PSA Peugeot Citroën in 2009, the unflappable 60-year-old Frenchman was chief executive at Corus, an Anglo-Dutch steelmaker struggling with falling demand and chronic over-capacity.

The parallels with his present job at Europe’s second-biggest carmaker by sales are striking. In an interview with the Financial Times in Paris, Mr Varin says that adversity is a natural state of affairs for a European industrialist, adding that he likes crises “because you do things in these situations that you cannot do in other times and the human experience with the teams is outstanding”.

This appetite for a challenge is certainly being tested at Peugeot, where Mr Varin is trying to push through painful job cuts after a year when its autos division burnt through €200m of cash every month and it was forced to ask a hostile French government for a €7bn state-backed bailout of its financing arm.

There are still questions about whether the company’s plan to return to financial health by 2015 is viable given its heavy exposure to southern Europe, leading to speculation that Paris may end up having to buy a direct stake.

The carmaker made some progress this week when unions representing about three-quarters of its workforce said that they would back its plan to cut more than 6,000 French jobs and the closure of its Aulnay plant near Paris. Only the Communist-backed CGT union remains opposed – violently so at times.

But Mr Varin recognises that the job-cut plan is only the start as Peugeot tries to make its French factories more productive. “We will have to continue to improve our competitiveness,” he says. “Renault has just signed an accord de compétitivité [with unions] and we have to go the same way.”

Mindful of the bitter opposition from the CGT, and some ministers, to his current restructuring, Mr Varin provides few details on what this might mean beyond saying: “In France we will see how we can reduce capacity, reducing the number of assembly lines but without closing more plants.”

Renault, which has survived the European crisis far better thanks to an alliance with Nissan of Japan, last week secured union backing for its plan to cut at least 7,500 jobs over three years. This attracted less fury than Peugeot’s plans because Carlos Ghosn, Renault chief executive, promised he would not close any French plant before 2016 at the earliest.

In exchange, Renault workers have agreed a salary freeze and to work more hours.

For Mr Varin, Renault’s deal provides a blueprint for carmakers across Europe, who are still suffering from over-capacity despite several planned closures.

“You’ve seen the first round of plant closures like Aulnay, Opel’s Bochum site in Germany and Ford in Genk [in Belgium],” he says. “But far more is needed and I think now the companies are really thinking about how to adjust capacities without the big plant closure announcements, which are very difficult from a political standpoint in the depressed environment . . . not only in France, but everywhere in Europe.”

Closer to home, the ongoing decline in European car sales raises fresh doubts about Peugeot’s own financial recovery.

Mr Varin says that he is sticking with a forecast to halve cash burn in 2013 and return to positive operational free cash flow by the end of 2014. But the targets are based on a recovery in Europe’s car markets next year, which would leave them at the same level as 2012 – something investors believe is increasingly unrealistic.

Philippe Houchois, analyst at UBS, says: “These kinds of recovery plans are not viable until the market stops shrinking. When you consider the dismal beginning to 2013, someone looking in from the outside would expect no growth in Europe for a number of years. Consumers are coping with huge pressure on disposable incomes and cyclically the industry brought forward sales two years ago with the scrappage schemes.”

Mr Varin concedes that “frankly it’s too early to say what’s going to be happening in 2014 and 2015 . . . you have to make assumptions for planning purposes”.

On a more positive note, he is optimistic about Peugeot’s expanding presence in China, Brazil and Russia, as it looks to catch up with its rivals by reducing European sales to half of the group total by 2015.

He also believes that after justified criticism of the company’s neglect of car design and marketing, it finally has a more attractive range of cars such as the smaller Peugeot 208 and the pricier DS range.

After tensions with French ministers such as Arnaud Montebourg, Mr Varin also points to a thawing of relations. “We have a shared goal because if this company remains too long in intensive care, the impact is huge because we represent two-thirds of car production in France.”

Indeed, the support of Paris could prove essential if Mr Varin’s recovery plan fails, with the French state unlikely to let a large industrial employer go bankrupt.

Another option is a merger with Opel, the struggling European arm of its US alliance partner General Motors, though Mr Varin insists that this is not on the table for now. ”Clearly the focus today for us and Opel is to restructure what we have to restructure in Europe,” he concludes. “In this situation adding two plus two doesn’t give you more than four.”

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