Peugeot-Citroen Losses Could Hit €2 billion In 2009

Peugeot-Citroen warned investors that losses could reach €2 billion in 2009 if France doesn’t extend its scrapping incentive scheme.

Losses will reach at least €1 billion, said Peugeot. If France doesn’t extend the scrapping scheme past the end of 2009, Peugeot-Citroen will have to cut production in the 4^th quarter. In 2008, Peugeot-Citroen lost €343 million.

Peugeot-Citroen gave the loss projection when it announced the launch of a convertible bond which could raise up to €575 million.

The Wall Street Journal’s Heard on the Street column cast doubt on Peugeot-Citroen’s future, in an item headlined “Peugeot likely to sputter”.

“Can a regional player like Peugeot be a long-term winner in Europe’s oversupplied car market? That looks unlikely,” the column said.

Worst case
This year the company has received a low interest loan from France for €3 billion and €400 million from the European Investment Bank.

Peugeot said the €2 billion loss projection was a worst case scenario. It had predicted sales would fall 20 per cent in 2009, but now it sees a sales drop of only 12 per cent, thanks to scrapping incentive schemes in France, Germany and belatedly, Britain..

Investors have said Peugeot needs to gain in scale and spread its markets outside Europe to survive. Some were hoping it might merge with Fiat, Ford Europe or BMW but that looks unlikely given the Peugeot family’s reluctance to give up control. The Peugeot family controls 30 per cent of Peugeot shares and about 45 per cent of the voting rights. Peugeot has partnership deals with Toyota, Mitsubishi, Ford and BMW, and is expected to use these routes to expand.

Nomura International analyst Jeremie Papin is also worried about 2010.

“Given our belief that Peugeot-Citroen management seems to share, that 2010 is likely to be more difficult as scrapping incentives end, we are concerned that 2010 targets of operating breakeven are now hard to achieve,” Papin said.