Asset Sales, Increase In Cost Cutting Show Lack Of Auto Confidence
Peugeot-Citroen’s dalliance with GM Europe diverted attention from its poor results for 2011 and dire outlook for 2012.
Peugeot-Citroen’s auto division lost about €497 million in the last half of 2011, while net debt nearly tripled to €3.38 billion. Peugeot-Citroen announced asset sales to raise €1.5 billion this year, while the €800 million cost saving programme involving 6,000 job cuts in Europe is being raised to €1 billion.
“That Peugeot-Citroen is embarking on a €1.5 billion asset disposal programme now speaks to a lack of confidence in short-term prospects at the Auto division – a view borne out by Peugeot’s inability to provide any outlook on 2012 profitability,” said Berenberg Bank analyst David Cramer.
“Our estimates assume Peugeot burns cash in 2012, albeit for now at a more moderate pace than in 2011,” he said.
In a report entitled “Peugeot: Switch on the fog lights,” Deutsche Bank said it was concerned by the increase in debt, and raised its operating loss estimate for the auto division to €150 million from a previous estimate of a profit of €50 million.
“The launch of the Peugeot 208 should be a significant earnings driver. However, the prices and volume environment has deteriorated and the mix is unfavourable with a sharp decline in the French market,” Deutsche Bank said.
Loss estimates raised
Citigroup Global Markets increased its estimate of 2012 automotive operating income to a loss of €600 million from a loss of €330 million previously, despite cost savings, on poorer volume and pricing assumptions.
“The focus on net debt reduction seems to us to be much more about crisis management than anything strategic. Nevertheless, we don’t see significant liquidity concerns at this stage,” Citigroup said.
The Financial Times Lex column said it was all European governments’ fault, after hugely generous cash for clunkers subsidies in general after the last downturn, while the French government in particular added to that with $3 billion loans to Peugeot and Renault.
“Peugeot Citroen results underscored – with much red ink – the overcapacity of Europe’s new car market and the urgent need for industry-wide cuts. That, in turn, is an indictment of the political short-termism that lavished government aid on European automakers to avoid plant closures,” Lex said.
Neil Winton – March 1, 2012
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