Ailing car maker announces recovery plan following £3.1 billion cash injection from the French state and China

The long-term rebuilding of PSA Peugeot-Citroën got under way recently when the French government and Chinese car maker Dongfeng made huge cash injections into the loss-making brand.

This year the two are putting a combined £2.46 billion into PSA, with a further £453 million due following a rights issue in the near future.

From next year another £657m will be released when recently issued warrants can be exercised by shareholders. PSA will receive a total cash injection of around £3.1bn. 

The funds will primarily be used for new product development, the financing of the new EMP1 compact platform and for radical new models such as a production version of the super-frugal 208FE concept

In exchange, the French state and Dongfeng will each receive a 14 per cent stake in PSA, matching the reduced share of the Peugeot family. 

The refinancing of PSA comes after company chairman Carlos Tavares announced a new four-year restructuring and recovery plan called ‘Back in the Race’. 

The most radical move will be to reduce PSA’s combined line-up to just 26 models, down from today’s 45 models. These new models will target “the most profitable” global market niches.

PSA’s three brands – Citroën, Peugeot and DS – will be repositioned to avoid product overlap and given a more global footprint. PSA also wants to hasten plans to make DS a fully fledged standalone premium brand.

PSA wants to triple the number of cars it builds in China with Dongfeng and “turn around the situation” in the South American and Russian markets so PSA’s operations in the regions are “profitable in the next three years”. 

In the short term, Tavares’ plan calls for PSA’s annual break-even point to be lowered to 2 million cars. PSA also revealed that while it assembled 2.3 million cars last year, the company’s break-even point was 2.6 million.

Lowering the break-even point will require a £205m reduction in fixed costs, reducing the factory build cost of each car by an average of four per cent and raising the average showroom transaction price by two per cent over today’s levels. 

PSA expects it to take four years to hit an operating margin of two per cent, with a five per cent margin taking until the next decade. 

Tavares’ biggest challenge will be to change the corporate culture. He said he wants to see a “competitive mindset – a focus on execution, accountability and a profit culture” at PSA.

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Comments
5

10 May 2014
Its interesting to see they want to increase the transaction price, as Citroen have long been associated with discounts and generous promotional deals. I remember when the DS3 was introduced they said they wouldn't discount it like the mainstream models, but that lasted about 5 minutes. I'm sure they don't need to discount the DS models as heavily as they do (especially the DS3), but maybe old habits die hard.

10 May 2014
How come PSA get all this French government money when every time the British government are asked why they don't help a struggling British company, the answer seems to be ' not allowed by EU rules'!

P.S. if their cars were more reliable people would buy them and they wouldn't be in so much trouble.

Dolphinman

10 May 2014
Where does all this "reliability" stuff come from. Not only does it not accord with personal experience or that of family, friends and acquaintances but it is at odds with reasonably independent surveys by such as J.D. Power. I fully expect this posting to be contradicted by others with a curiously clonal air about them. One of the early acts of PSA needs to be the establishment of some form of counter propaganda organisation!

11 May 2014
Flatus senex

..received attention sticks? Surely a case of sum ting wong.

11 May 2014
Flatus Senex - unfortunately the French car companies cannot escape their history of sometimes very unreliable cars - they may have changed to a degree now but they haven't ever had a halo above their cars in this respect. Also build quality has never been their 'raison d'etre' but is now improving. However, cars like VW have a perception of being reliable but they are anything but reliable! Remember the Golf advert - 'If only everything in life was as reliable as a Volkswagen'. Perception and reality are two different things - I am sure Mercedes and BMW are just as unreliable - but peoples brand perception is completely different. In the UK we are secretly jealous of the French having 3 major car companies which clearly the government support - we have to make do with the support of the Japanese building their cars in the UK.

1. Get Product right for both Peugeot Citroen and DS
2. Advertise properly to change perception
3. Give good service and help customers
4. Be competitvely priced but not to cheapen the brand.

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