PSA Peugeot Citroen (UG.FR) is working on plans to deal with its
chronic over capacity in Europe but the alliance with General
Motors Co. (GM) announced last week doesn't offer any short-term
solution to the problem that's undermining their profitability in
the region, says a senior member of the Peugeot family.
"It's true, we're dragging a huge ball and chain," Robert
Peugeot told Dow Jones in a recent interview. "We're well aware of
the problem and we're working on it. But I can't tell you anything
today."
Peugeot heads Societe Fonciere, Financiere et de Participations
(FFP.FR), a Peugeot-family investment vehicle that owns 22.8% of
the capital and 32.24% of the voting rights of Europe's second
largest automotive group after Volkswagen AG (VOW.XE). The Peugeot
family also controls another 8.17% of the auto maker's capital and
12.38% of the voting rights through another holding company.
Like other car makers, Peugeot's assembly plants in France and
elsewhere are working well below their potential because of weak
demand. Company officials have estimated the level of over capacity
at 20% overall and much more in some facilities, while fixed costs
are difficult to compress.
Industry analysts say Peugeot Citroen needs to shut down at
least one of its production plants, but is prevented from doing so
by political pressures. There has been recurrent speculation that
the company wants to shutter a plant at Aulnay, north of Paris,
where the small Citroen C3 is made, after 2014.
"We're seeing a structural decline of the European market and I
don't see the end of it, at least in the coming months," Peugeot
said in the interview at the French car maker's head office in
Paris.
Peugeot, who also heads the auto manufacturer's strategy
committee, noted that the Spanish automobile market this year is
expected to be about 55% below the pre-crisis level of 2007, and he
doesn't see it recovering in 2013.
Peugeot has an assembly plant in Spain, and it's widely
considered that it would be easier for non-resident auto makers
present in Spain to shutter plants there than in their home
countries.
Asked if Peugeot is contemplating such a move, Peugeot replied:
"I'm not going to answer that. The kind of studies that we're doing
are difficult for all manufacturers, so I can't spread rumors about
this or that site or country."
The news of Peugeot Citroen's alliance with GM on Feb. 29 has
met with some skepticism by industry analysts who have pointed out
it includes no near-term restructuring plans to address the problem
of over capacity.
Under the plan, the two companies are aiming for $2 billion of
synergies annually by pooling their purchasing, and will
collaborate closely on developing new common components and
platforms on which future models will be based. As part of the
alliance, GM is taking a 7% stake in the cash-strapped French
company whose automotive division lost EUR497 million in the second
half of 2011. The French company is planning to raise EUR1 billion
through a rights issue to bolster its finances.
Still, the two companies remain competitors, with their Peugeot,
Citroen, Opel and Vauxhall brands competing head on in Europe.
"Restructuring remains the key issue, but is not addressed,"
Kristina Church and Michael Tyndall, analysts at Barclays Capital,
said in a research note Friday.
The analysts said "the alliance to us seems more like an outline
of a structure, rather than something more structured and well
planned."
But trade union officials in Germany and France are worried that
job cuts and possibly factory closures are coming particularly as
the companies have not ruled them out in the future.
Peugeot and GM "are happy to tell us that [they] will do things
together that they were doing apart until now," French trade union
Confederation Generale du Travail said in the latest newsletter for
members at Peugeot's Sochaux factory in eastern France. "The hunt
for overlaps is therefore underway. With the consequences for jobs
we can only imagine," the CGT said.
Peugeot acknowledges that it's not easy to explain the long-term
logic of the alliance. "You're forced to believe us, because we
can't show you our production plan, and the first products won't
appear before 2015 or 2016."
He also admits that, initially, there may be initial
inter-corporate frictions. "There will inevitably be a bit of "not
invented here" on each side," he said.
GM isn't Peugeot Citroen's first dalliance with a U.S. partner.
In the late 1970s, when the then Chrysler Corp was struggling to
survive, Peugeot took over Chrysler's European production and
distribution assets, in exchange for which it took a 15% stake in
the French company. Peugeot was forced to dump its expensively
acquired assets that were later found to be sub-par, a situation
that Peugeot described as buying "a pig in a poke."
Peugeot started selling its cars in the U.S. in 1958 - the
beat-up wreck driven by Lt. Columbo in the detective series is a
Peugeot 403 convertible - but stopped in the 1970s as its cars
weren't adapted to American tastes.
Peugeot Citroen might consider one day piggybacking on GM to
relaunch into the U.S. market, Peugeot said. "We could do that, but
not right now. We still have so much to do elsewhere. We have to
reinforce our development in Latin America before opening a new
front in the North American market.
Peugeot said he was impressed by the GM executives in the
negotiations leading up to last week's deal.
"My impression is that they mean business. (GM Chief Executive)
Dan Akerson is from the Middle West, he's a straight talker,"
Peugeot said.
-By David Pearson, Dow Jones Newswires; +33610157319,
david.pearson@dowjones.com