Late last Friday evening, an investor’s note popped into the Autocar inbox. Our old friend Max Warburton – rated as Europe’s leading automotive analyst – was making one of his trademark interventions in the often stuffy world of investment advice.
His latest note to investors was entitled "Peugeot: You Don’t Need This Chinese Deal (An Open Letter To The Chairman)". Max and his team at BernsteinResearch say they think that the share price of Peugeot-Citroën (PSA) has potential to outperform the market without the need to sell a stake to Chinese car maker Dongfeng.
With the PSA board expected to rubber-stamp the deal early this week, Max has written his note to investors partly as a letter to Thierry Peugeot, chairman of the PSA board. From the outset of his note, Max sympathises with Thierry Peugeot.
"Cher Thierry. It must be a heavy responsibility to be the Chairman of PSA and the latest in a long line of family members to lead the company. You must find a way forward for one of France's great industrial icons at a time of extreme economic weakness, intense competition and huge shifts in the global automotive landscape. You must find a way to protect French jobs and capabilities and ensure the company does not fail."
Max then asks Thierry Peugeot if he could not "still persuade your management team to change course?", and goes on to say "Press reports suggest that originally you were not convinced of the merits of a Chinese deal but have been outvoted by your cousin Robert and Mr. Varin.
"We think your original position was correct – you can raise money via other routes, you may be able to trade your way out of trouble and avoiding a deal with Dongfeng would keep other (more attractive) industrial options open."
He then asks exactly what Dongfeng is bringing to the deal. "Dear Thierry, we don't understand fully why Peugeot wants this deal with Dongfeng. We accept no one else wants to partner with you at the moment. Fiat's flirtation was brief, Renault has its own alliance and GM just walked away.
"The Chinese may look like the only option. But do you need a cash-rich but knowledge-poor Chinese partner?" Max and his team also highly rate PSA’s new EMP2 platform and the recent new models, especially from the Peugeot brand."
"The technological underpinnings of the new 208/308 are second only to Volkswagen's platforms with PSA having achieved significant weight savings on the new models compared to their predecessors. The brand new 2008 (crossover SUV) has been a sales success and the new C4 Picasso has helped the company gain share in the minivan segment."
The conclusion of these top-rated analysts is that Peugeot "can trade its way out of its current difficulties". They recommend some radical ideas, such as stopping all research and development spending and capital expenditure for a year, closing at least one factory and squeezing big saving from its working capital. Apparently Renault saved £1.8 billion over the past three years with the latter.
Truth is it’s probably too late for PSA to execute a handbrake turn, so it will soon be partly controlled by a combination of the Peugeot family, the French state and Chinese car maker Dongfeng. Quite how that will work out is probably beyond the powers of even the Bernstein analysts to predict.