General Motors’ European affiliate Peugeot-Citroen of France looks to be in slightly better financial shape than feared, but still faces a tough route back to break-even, according to investment bankers.
In the first half of 2013 Peugeot-Citroen’s automotive losses shrank to the equivalent of $680 million, better by $196 million compared with the same period of 2012.
(French companies like Peugeot-Citroen and Renault only report earnings every six months).
Peugeot-Citroen’s automotive division had been expected to lose about $950 million in the first half, and about the same again in the second half of 2013. Peugeot-Citroen has pledged the automotive division will break even by the end of 2014.
GM bought seven per cent of Peugeot-Citroen in February 2012. The companies plan to produce a small gasoline engine, and develop three new vehicles. There is a cost-cutting plan too, which should yield $2 billion annually by 2016. Rumors suggested Peugeot-Citroen might want to merge with General Motors’ Europe. GM has said it has no such plans currently.
Financially troubled Peugeot-Citroen burned through almost $4 billion in cash in 2012, pledged to halve that in 2013 and become cash neutral by the end of 2014. But in the first half of 2013 it generated about $270 million in cash, thanks largely to slashing capital spending by close to $1 billion, higher earnings and asset sales.
Commerzbank reckoned Peugeot-Citroen could be profitable again by 2015, but warned that its future was still in doubt.
“Keep in mind that Peugeot-Citroen is still loss-making, burns cash and although the restructuring plan is on track, margin for error remains thin,” said Commerzbank analyst Sascha Gommel.
Morgan Stanley also pointed to some problems which threaten the future of Peugeot-Citroen, which has been weakened by its failure to expand away from its home market. Cutting development spending now might rebound later.
“Peugeot-Citroen continues to execute well on what is under its own control, but continues to suffer from a footprint skewed to France, lack of international exposure and limited strategic options long-term. We also believe cutbacks to (investment spending) could prove detrimental to future product at a time when peers are stepping up their efforts, which could lead to further market share erosion,” said Morgan Stanley analyst Laura Lembke.
Peugeot-Citroen is the second biggest European manufacturer, with market share of 11.3 per cent in the first half of 2013, according to Automotive Industry Data. But this was sharply down on the 13.8 per cent in the same period of 2012, and compares with market leader VW’s 24.6 per cent.
In the first half, Peugeot-Citroen sales were helped by the success of the Peugeot 2008 small SUV, 208 hatchback and Citroen DS brand. Launches later this year include the Peugeot 308 small family car, which competes with the VW Golf, and the Citroen C4 Picasso minivan.
The Financial Times’ Lex column said Peugeot-Citroen’s latest numbers showed it was on track for stabilization.
“But this does not resolve the issue of whether further recapitalization may be needed medium-term, nor whether enough capacity has been removed,” Lex said.