Opponent Of Dongfeng/France Plan Goes.
Meanwhile Investors Wonder About Efficacy Of Turnaround Plan.
Investors are puzzling about Peugeot-Citroen’s chances of fulfilling its financial turnaround plan, and its latest results due at the end of July will give clues as to whether it is yet showing traction.
But as the new shareholders from China and the French government settle down on the board, they will have a new colleague – Marie-Helene Roncoroni, the sister of Thierry Peugeot who stepped down in early July.
As part of the rescue plan for ailing Peugeot-Citroen, the French state and Dongfeng Motor of China agreed to take 14 per cent stakes in Peugeot. The deal diluted the Peugeot family stake to 14 per cent also, from 25.3 per cent.
Thierry Peugeot was publicly critical of this aspect of the rescue.
The Peugeot turnaround plan unveiled in April by CEO Carlos Tavares is called “Back in the Race”, and calls for a two per cent operating profit margin by 2018 rising to five per cent between 2019 and 2023. Peugeot lost more than €7 billion between 2012 and 2013.
Tavares said he would dump some uneconomic models and replace them with an attempt to move upmarket using the DS brand.
Thierry, who was placed as chairman by Louis Gallois in March, had said in a newspaper interview that the deal which gave Dongfeng and the French government stakes in the business was a mistake.
International Strategy and Investment (ISI) didn’t like the implications of the replacement of one family member with another.
“In general we believe that having less family influence must be a good thing for Peugeot-Citroen, certainly after the very public disagreement between Thierry and Robert Peugeot over the necessity of a deal with Dongfeng and the French government. But seeing Mr Peugeot replaced by his sister certainly does little to convey the message of less family influence or indeed of a uniform view about how to run the business,” ISI said in a report.
Robert Peugeot was believed to a big supporter of the Dongfeng/France deal.
Morgan Stanley analyst Laura Lembke didn’t seem bothered by the board room shenanigans, and with some time to sift the evidence of April’s plan, came to the conclusion that, yes, the plan looked achievable, but only if it is executed flawlessly. Lembke saw potential risks, and wondered how Peugeot-Citroen’s cuts in R&D spending might hurt it as potential buyers compared technology across competitive models. Despite cuts in production, Peugeot-Citroen was still heavily concentrated on France.
Lembke said a lack of R&D spending compared to the competition, a production footprint that will remain skewed to France even after further capacity cuts, and the fact that benefits from the Dongfeng cooperation outside of China may take time to materialise, didn’t favour Peugeot-Citroen.
The two per cent profit target for 2018 was doable. Was it conservative?
“Possibly, but there is little room for error. We think Peugeot-Citroen offers few low hanging fruits for Mr Tavares. Yet we believe a two per cent auto margin by 2018 is viable in a scenario where it executes flawlessly and risks, such as further market share losses, can be mitigated,” Lembke said.
Lembke wasn’t bothered by the board-room machinations, but Automotive News Europe columnist Bruce Gain reckoned Peugeot-Citroen would be better off without Thierry Peugoet because his replacement supported the Dongfeng deal.
Gain quoted Commerzbank analyst Sascha Gommel saying this meant the lessening family influence and would be good for Peugeot-Citroen.
“The board is more independent now from the family. Their decisions will be based on what is good for the company instead of what is good for the Peugeot family,” he quoted Gommel as saying.