John Reed
PSA Peugeot Citro?n plans to sell 1.5bn euros worth of assets, including shares in its Getco logistics division, after reporting sharply lower 2011 earnings amid the eurozone crisis and a price war in small cars.
Philippe Varin, chief executive, said the French carmaker aimed to raise more than 500m euros by opening Getco?s capital to outside investors and about 500m euros from real estate sales, on top of the 440m euros it raised selling its Citer car-rental car business earlier this month.
Mr Varin also said that Peugeot-Citro?n would cut capital expenditure, including by slowing its expansion plans in India and halting unprofitable projects. In order to conserve cash and cut its rising debt, the company said it would increase the cost savings it is targeting under a plan announced in November from 800m euros to 1bn euros.
The company, Europe?s second-largest carmaker by sales after Volkswagen, on Wednesday reported 2011 net profit of 588m euros, down from 1.13bn euros in 2010, which Mr Varin described as ?disappointing?.
The result reflected a 497m-euro second-half loss in its core carmaking division, which is being hurt by Peugeot-Citro?n?s reliance on declining western European markets and its focus on low-price, low-margin small and very small ?A? and ?B? segment cars.
The company said that it burned through 1.6bn euros of cash last year. Net debt at Peugeot-Citro?n?s manufacturing and sales divisions soared last year to 3.36bn euros at end-December, from 1.24bn euros at end-2010.
?We definitely have to turn around the automotive division,? Mr Varin told an analysts? conference. ?This is the heart of the group.?
Peugeot-Citro?n had warned last year that it would report a significant financial loss in the second half of 2012.
France, Spain and Italy, which are at the heart of Europe?s debt crisis, account for 59 per cent of Peugeot-Citro?n?s European sales. The company sold 42 per cent of its cars outside Europe last year, a smaller proportion than most of its mass-market competitors in Europe.
The company said that it expected Europe?s car market to contract by 5 per cent this year and France?s to decline by 10 per cent.
Goldman Sachs, in a research note, said that while PSA?s results were ?mildly better than expected, they reveal the extent of the strategic impasse? facing the company.
Most of Peugeot-Citro?n?s plants are in high-cost locations in France and western Europe, where structural overcapacity means that producers are building more cars than the market needs and then discounting competitively in order to sell them.
?The treatment of the overcapacity issue cannot be avoided,? Mr Varin said. ?It will just take more time in Europe than in the US?.
To reduce its reliance on unprofitable small cars, Peugeot-Citro?n is accelerating its roll-out of higher-margin products like Citro?n?s upscale new DS line.
Premium models now represented 18 per cent of the company?s product mix, but 40 per cent of its commercial margin, Mr Varin said. The company is launching four diesel hybrid cars and two sport utility vehicles, the Peugeot 4008 and Citro?n C4 Aircross.
Industry analysts and competitors have speculated that Peugeot-Citro?n cannot survive unless it merges with a rival. Thierry Peugeot, the company?s chairman and family shareholder representative, has indicated the company?s openness to alliances.
However, Mr Varin discounted the notion of any imminent tie-ups. ?We don?t rely on alliances to sort out the profitability and cash flow problems,? he said.
The company would extend its existing co-operation with other producers, including BMW, with which it is working on parts for hybrids and electric cars, he added.