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Peugeot Plans Could Be Diluted By French Government

Peugeot Plans Could Be Diluted By French Government
Current Closures Expected To Go Ahead, But Future Cuts Doubted  

Peugeot-Citroen will benefit from the French state bailout of its financing arm by being better able to compete with tough competitors like Volkswagen, but its long-term survival plan may be jeopardised by government interference, according to Fitch Ratings.

In late October the French government agreed to underwrite up to €7 billion of bonds issued by Peugeot-Citroen’s financing bank, to allow it to offer low-cost credit to dealerships. In return, the government limited Peugeot’s ability to pay dividends, and insisted on a seat on the board for itself, and unions too. 

Peugeot-Citroen’s current wobbly finances would have led its credit rating to be cut, forcing it to charge higher rates on loans to buyers.

Peugeot-Citroen is expected to lose €1.5 billion in 2012, with more red ink to come in 2013.  Peugeot-Citroen has announced it would close the Aulnay plant near Paris in 2014 eliminating 6,500 jobs, and axe another 1,500 jobs across the organisation. It has sold assets worth €1.5 billion and launched a €1 billion rights issue.

Fitch worried that the government’s representative would dilute needed cutbacks and would harm the long-term recovery programme.

Benefit reduced
“We believe this benefit may be reduced by possible restrictions on the parent group’s independence to implement further strategy changes,” said Fitch analyst Emmanuel Bulle.

”We do not believe that Peugeot-Citroen’s recently announced plans to close its factory in Aulnay and reorganise the one in Rennes will be blocked by the state and abandoned. Nonetheless, we are concerned that Peugeot-Citroen’s ability to fully implement its strategy without any involvement from the state, in particular to decide on further restructuring measures or engage in corporate activity may be limited,”  Bulle said.

Meanwhile, in an interview with Automotive News Europe, Peugeot-Citroen’s head of brands Frederic Saint-Geours said he wants to move the company’s products upmarket to justify its presence in high-cost France. Peugeot-Citroen’s over reliance on European sales is being corrected, with sales outside Europe having risen to 42 per cent now from 30 per cent two years ago. The 50 per cent target will be reached by 2015. 

Saint-Geours made no comment on the possibility of government interference in the recovery plan.

Neil Winton – November 30, 2012

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