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Peugeot Bailout Stirs Ford, Renault, VW’s Home State Protest

Will Brussels Declare €7 billion Loan Illegal?

“If Peugeot will not either reduce plants or increase sales, there is a chance it might not exist anymore”

Financially-stricken Peugeot-Citroen’s effective bailout by the French government caused consternation among investors and its competitors, and this news overshadowed any positive fall-out from news that its deal with GM Europe was on schedule.

The French government announced that it would guarantee up to a €7 billion loan for Peugeot-Citroen’s banking arm. Peugeot-Citroen justified this by saying the money was being lent at market values, adding that it was state support, not state aid.

Ford and (15 per cent French state-owned) Renault joined the German state of Lower Saxony (VW’s domicile, 20 per cent controlling stake owner) in opposing the aid, with the latter saying it would seek European Commission review. The French government is likely to demand representation on Peugeot-Citroen’s board, and a voice for the unions too.

The Financial Times Lex column criticised the loan, saying it would stop needed production cuts.

“Whether such aid will avoid a political spat is less clear: unfair state aid charges have been made, although Peugeot insists that the guarantees will be provided at market rates. The real trouble, though, is that this threatens to postpone capacity rationalisation,” Lex said.

Commerzbank was more worried about Peugeot-Citroen’s announcement that its debt would rise to €3 billion by the end of 2012 from an expected €2.5 billion. It welcomed the Banque PSA government loan, but conceded it would lead to a less aggressive restructuring, with fewer layoffs and no plant closures.

Citi Research reluctantly accepted the government assistance, saying without it there was a chance the company might go bust. Things still looked tough though.

Cash burn
“Given perceptions around a reduced prospect for taking out capacity and ongoing cash burn it is still difficult to build a compelling investable equity story, in our view, even if the downside risk has been reduced by the potential to address the (financing) issue,” Citi analyst Philip Watkins said.

Peugeot-Citroen is expected to burn through €1.6 billion of cash in the second half of 2012, or about €270 million a month.

Opel-Vauxhall and Peugeot-Citroen confirmed in October they would co-develop four vehicles as part of their alliance, announced in February, with the first ones appearing in 2016. The plan to save $2 billion with joint purchasing within five years was also on target.

The most apocalyptic verdict on Peugeot-Citroen’s future came from Nicolas Meilhan of Frost & Sullivan.

“If Peugeot will not be able to either reduce its plants or increase its sales, there is a chance that Peugeot might not exist anymore in the future,” Meilhan said.


Neil Winton – October 30, 2012

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