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PSA Group

PSA Groupe (France)

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PSA Groupe is one of France's biggest carmakers, and regained its former position as the #2 in Europe following a shock deal to acquire GM's Opel and Vauxhall brands in 2017. Until recently PSA's traditional focus on its home market, as well as recurrent financial problems since the 1980s, had caused it to be overshadowed by domestic rival Renault. PSA attempted to kickstart international expansion through aggressive moves into Asia, Latin America and the Middle East, but sales remained doggedly flat for several years, hampered by a lack of new launches. A new management team was installed at the end of 2006 to break the group out of its rut, but the downturn in the economy did not help recovery, and the group announced an unexpected loss for 2008, resulting in another change of leadership. There was a modest improvement in performance for 2010, also the 200th anniversary of the Peugeot brand, but losses again the year after. That prompted the creation of a sourcing alliance with GM, also struggling in Europe. Although that project fell flat and was partially unwound only a year later at the American company's instigation, it was to sow the seeds of a much bigger deal a few years later. In the mean time, PSA's Chinese partner DongFeng Motors and the French state agreed in 2014 to provide much-needed cash to keep the business afloat. That return to financial stability allowed PSA to negotiate a dramatic new expansion to its portfolio in 2017, with an agreement to acquire GM's Opel and Vauxhall. It also subsequently made approaches, which were initially rebuffed, to Fiat Chrysler. Further talks proved more fruitful, and the two groups agreed terms for a full merger in late 2019. See also:

Opel
Vauxhall

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Brands & Activities

Until 2017, PSA had slipped behind rival Renault to become Europe's #3 passenger carmaker overall (Volkswagen has long been the undisputed leader). The group has two main marques, Peugeot and Citroen, but the latter's DS model has been positioned as a separate third premium brand since 2014, with mixed results. That development was partly conceived as a way of differentiating between the group's two competing joint ventures in China. There has in the past been comparatively little to differentiate between the two lead brands, each of which houses a broad range of mid-market sedans, small cars and light commercial vans. According to PSA, the Peugeot marque signifies "reliability, dynamism, style and innovation", summed up by brand slogan "The drive of your life". Citroen on the other hand offers "a blend of class, styling and quality". To most eyes, however, Peugeot is perceived as the more traditional brand, while Citroen has long been associated with stylish or more unusual design. (The original frog-like DS design of the mid-1950s was once voted the most beautiful car of all time by Classic & Sportscar magazine).

The group has been trying to reposition itself since 2010 as a premium manufacturer to counter the brutal decline in mass-market car sales, and turn around its own weak performance. It announced an ambitious growth strategy in 2002, setting itself a goal of selling 4m vehicles a year by 2006. That target quickly began to look absurdly unrealistic in the light of declining sales in Western Europe. Far from rising, volumes steadily fell towards the end of the 2000s as a result of the dramatic slowdown across the global industry. Having slumped to a low of under 3.2m vehicles in 2009, they bounced up and down for a couple of years, before plunging below 3m in 2012, where they remained for several years. A major contributing factor was the suspension of supplies of low-priced CKD ("completely knocked-down") kits for reassembly by local manufacturers in Iran. Volumes finally edged back over 3m units in 2016 (to 3.15m), following the resumption of trade with Iran.

The sheer profusion of different models - there were 45 in all by the beginning of 2014 - has also hindered PSA's financial performance in recent years, and in Spring 2014 new CEO Carlos Tavares outlined a plan to eliminate smaller niche designs and cut the portfolio to just 26 vehicles by 2022. Part of that strategy involved the spin-out of the DS, previously a model within the Citroen family, as a luxury brand in its own right.

The part-year contribution from Opel and Vauxhall lifted volumes for 2017 by 15% to 3,632,300 cars and light trucks. The Peugeot marque sold a total of 2,120,000 vehicles, up 10% year-on-year, and its best result for several years. (A key factor was a joint venture in Iran to produce out-of-date Peugeot models from CKD kits. That deal alone contributed 440k reduced cost vehicles). Citroen contributed 1,056,000 vehicles, down almost 8%, while sales of the standalone DS brand crashed by 39% to 53,000 units. Opel/Vauxhall contributed 404,000 units for the final five months of the year.

Europe is still PSA's biggest market by far, accounting for two-thirds of volumes. In France, its biggest market, PSA's two brands make it the #1 automobile manufacturer with total registrations of around 662k units in 2017, equivalent to 31.4% share. However, Renault is the #1 by brand sales, ahead of Peugeot at 367k and Citroen at 201k. Similarly, the Peugeot 208, Peugeot 3008 and Citroen C3 were the #2, #3 and #4 best-selling models in France behind Renault's Clio. However no other country in Europe comes anywhere close to the volumes sold in France, even though the addition of Opel and Vauxhall narrows the gap more than a little. The group's next biggest market is now Germany, with 371k registrations in 2017. Opel accounted for around two-thirds of that total. In the UK, registrations were 338k - of which Vauxhall accounted for more than half. In both those countries, as well as Italy (283k units) and Spain (236k units), PSA moved up to become the local #2 car company.

Sales outside Europe broke the 1m level for the first time in 2005 and have generally continued to climb, apart from the occasional temporary set back. For 2017, sales outside Europe contributed a third of the group total, or 1.25m units; however, resumed trade of low-cost CKD kits to Iran accounted for 443k of those volumes. Latin America had at one point been a key growth market, with sales breaking the 300,000 barrier for the first time in 2011, helped along by the launch of two launches designed specifically for the local market, the Peugeot Hoggar and Citroen C3 Aircross. However, performance has plunged since 2014, and has been slow to recover, reaching only around 206k units in 2017.

Instead, China has now emerged as the group's most significant non-European territory (apart from Iran). Peugeot and Citroen vehicles are manufactured and marketed by a joint venture with local partner Dong Feng Motors. A separate and smaller joint venture with Chang'an Automobiles, launched in 2011, now manufactures a local version of the DS brand. Combined sales for 2014 jumped by almost a third to 734,000 units, but have crashed back since then to around 380k in 2017. That still leave China as PSA's #2 market for asembled cars. The group launched its first manufacturing plant in India in 2012.

PSA's continuing difficulties in Europe, plus its need to replenish its financial reserves, prompted the creation of a potentially significant alliance in 2012 with General Motors, whose Opel division is also under intense pressure. GM injected $335m into PSA in return for a 7% equity stake, and the two companies vowed to cooperate on parts purchasing, engine development, and ultimately also on the design of three small cars on a shared platform. As a by-product of that alliance, PSA suspended further sales of CKD vehicles to its Iranian customer. However the alliance never really gained traction, and GM partially withdrew from the partnership the following year, putting its 7% shareholding up for sale. The two companies continue to work together on shared projects, but with a less binding structure. Instead, PSA agreed a new deal in early 2014 with its Chinese partner Dong Feng Motors, which agreed to supply €800m of much needed cash in return for a 14% equity position. That stake was matched by the French state, which also ended up with 14% equity.

In 2017, PSA negotiated a dramatic new deal with GM, agreeing to take over its struggling Opel and Vauxhall division. The agreed price was €1.3bn for the auto business and another €900m for its financial services division. However, taking into account a separate €3bn payment from GM to PSA to settle part of the European group's pension shortfall, the US company effectively paid PSA €800m to take Opel off its hands.

The group's best-selling car overall is the new Peugeot 208 small car, launched in 2011. It achieved sales of 327k units in 2017, putting it just outside the Top 50 automobiles globally, but among the top five in its class. The group's #2 seller that year was actually the old Peugeot 405 family car, produced under license in Iran from a kit supplied by PSA. Volumes jumped to 267k units following the resumption of full trade with Iran. In terms of vehicles built inhouse by PSA, the 308 was the next biggest seller, a mid-range sedan which has replaced the old 307 model. Volumes were 242k units in 2017, just ahead of the 2008 compact SUV at 232k units and 3008 mid-size SUV at 226k units. The latter was European Car of the Year in 2017. Another Iranian kit car, the old 206 small car, accounted for 177k units, while Peugeot's Partner LCV delivered 166k units. No other Peugeot model exceeded 100k units. In several European markets, the group also offers rental service under the Mu by Peugeot banner.

The best-selling Citroen is now the C3 small car, which has overtaken the C4 compact saloon by sales. Both cars come in multiple different versions. The C3 contributed 345k units in 2017, to the C4's 239k. Citroen's best-selling light commercial model is the Citroen Berlingo at 165k units. The group also launched its own short-term rental and car-sharing service under the name Citroen Multicity.

The group reintroduced the DS range in 2010 with the brand new DS3 four-door coupe, voted car of the year by several leading media brands in the UK and France. It was followed by the DS4 in 2011 and DS5 in 2012. However, volumes have been in steep decline in the past couple of years, raising questions about the viability of DS as a standalone brand. The group is hoping to reignite sales with the launch of the first DS SUV, the DS 7 Crossback in 2018.

The group continues to account for the two automotive businesses separately. The original Peugeot Citroen DS division reported revenues of €43.03bn, with operating income of €3.62bn. Opel Vauxhall added €18.31bn and operating income of €859m.

Another subsidiary, Faurecia, is the European leader in car seats, instrument panels, exhaust systems and interiors, with gross sales of €17.5bn in 2018. Peugeot Motorcycles is Europe's #3 scooter manufacturer. Mister Auto is the group's ecommerce spare parts business, acquired in 2015.

Banque PSA Finance supplies financing for purchasers of group vehicles, with a loan book valued at well over €22bn. It agreed a pan-European joint venture in 2014 with Santander, commencing with joint ventures in France and the UK and being gradually rolled out to other countries. In 2017, a separate partnership with BNP Paribas acquired GM Europe's consumer finance division. This will continue to operate as a separate entity from Banque PSA.

Gefco is France's #2 transport and logistics company, although group companies contribute almost two-thirds of revenues. In 2012, PSA sold a 75% stake in that business to Russian Railways for around €800m. PSA sold Panhard & Levassor, which makes light armoured military vehicles, to rival Auverland in 2005.

Financials

After two years of flat performance, group revenues peaked in 2007 at €60.6bn, before falling sharply in 2008 and 2009. In early 2009, PSA accepted €3bn of financial assistance from the French government in the form of a loan. In return it agreed not to make any compulsory redundancies within France. There was a much-needed rebound in 2010, with revenues rising 16% to €56.1bn, while attributable net profit was €1.1bn. The government loan was repaid during 2010 and early 2011.

The latter year proved very challenging, primarily because of the group's continuing reliance on the ailing European market. Revenues for 2011 rose 7% to €59.9bn, including automotive sales of €42.7bn, but attributable net income effectively halved to €588m. Virtually all of that sum came from non-automotive operations. The automotive business reported an operating loss of €92m. The group's problems worsened in 2012 as group revenues slid by a further 5% to €55.45bn, and automobile revenues by over 10% to €38.3bn. A €3bn impairment charge against automobile operations, on top of operating losses, resulted in a final attributable loss of €5.01bn.

For 2013, group revenues slid by a further 2% to €54.09bn, but sales from the automotive division were down 5% to €36.5bn. Net loss more than halved to €2.32bn, but mainly because of lower impairment charges. Operating losses at the automotive business were reduced from almost €1.5bn in 2012 to €1.04bn.

Reported revenues slipped back further in 2014 as a result of the divestment of Gefco. On a comparable basis there was a 1% increase to €53.61bn. Europe still accounts for 70% of revenues. The group reported its third consecutive net loss though the attributable figure reduced to €706m. Revenues for 2015 rebounded to €54.68bn, before falling back slightly again in 2016 to €54.03bn. PSA was back in the black again for 2015 with an attributable profit of €899m. That almost doubled to €1.73bn for 2016.

PSA's recovery appeared complete by 2017. Helped by a part-year €7.2bn contribution from Opel, revenues jumped 21% to €65.21bn, the highest level ever recorded by PSA. Proforma revenues including a full year from Opel would have been around €75bn. Attributable net profit rose almost 12% to €1.93bn.

The full-year contribution from Opel lifted revenues to a record high in 2018 of €74.03bn, while net income jumped by 40% to €3.30bn.

For years, the widely spread Peugeot family had retained control of the group through family investment company Establissement Peugeot Freres, and its publicly quoted subsidiary FFP. Following the 2012 capital increase, the family's holding reduced to around 25% of total equity and 38% of the company's voting shares, held through EPF's publicly quoted investment group FFP. As part of the subsequent rescue deal negotiated with Dong Feng Motors and the French state, the Peugeot family's stake was further reduced to what is now around 13% (but a slightly larger share of voting rights). Thierry Peugeot - who had opposed the bailout - resigned as chairman of the supervisory board in 2014 to be replaced by non-family member and former Airbus CEO Louis Gallois. Initially he remained a director of the group, but was asked to relinquish this role as well after criticising the deal in a media interview. He was replaced on the board by his sister Marie-Helene Peugeot-Roncoroni, now PSA vice chairman. Their cousin Robert Peugeot, CEO of FFP, remains a director. Jean-Phillipe Peugeot is president of family investment company EPF.

Background

Peugeot is one of the original names in European auto manufacturing, with a business dating back almost 190 years. In 1810, brothers Jean-Pierre and Jean-Frederic Peugeot saw an opportunity to extend their family's grain-milling business into the manufacture of steel springs for clocks. During the course of the century, the business continued to develop, expanding into coffee-grinders and sewing machines, before finding a large market for bicycles in the 1880s. By then the business was run by cousins Armand and Eugene Peugeot. In 1890, Armand Peugeot used a gas-powered engine made by Daimler as the core of a "quadricycle", and began to promote its invention by entering - and winning - cycle racing events during the closing years of the century. However Eugene wasn't comfortable with this new direction, forcing Armand to set up a separate business of his own. Sales followed, and by 1900 Automobiles Peugeot was turning out 20,000 bicycles and 500 prototype cars a year. In 1905, Armand's company launched the affordable "Bebe", the first lightweight, compact, single-cylinder car targeted at ordinary consumers. Eugene was eventually forced to recognise his error and the two Peugeot businesses were combined once more in 1910. Despite the arrival of American competitors Ford and General Motors, Peugeot was the world's biggest motor manufacturer right up until the First World War.

At around the same time, Andre Citroen was establishing his own business to produce cheap but technologically advanced cars. His type A, introduced in 1919, was the first automobile in Europe to be built on American-style assembly lines, quickly adopted by other manufacturers in the region. It was also the first left-hand drive car in France, and Citroen introduced many other unusual and innovative processes for car manufacture, not least all-steel bodywork in 1924 (instead of part metal, part wood) and front-wheel drive. He also revolutionised the factory process, providing workers with paid holidays, creches for children and other facilities, while also insisting on a rigorously efficient assembly line. Nevertheless, despite the quality of the cars, while Peugeot prospered during the recession of the 1920s, Citroen foundered. In 1934, the company was forced into bankruptcy, rescued finally by tire maker Michelin.

In 1929, Peugeot introduced a new car to which it gave the model number 201, establishing a style for all its subsequent vehicles. This car had independent front wheels, a process invented by Peugeot and quickly adopted by almost all other manufacturers. During the next ten years, the 402, 302 and 202 models were introduced, widening the appeal and affordability of Peugeot cars to all markets. Inevitably the Second World War brought major disruption to the company. During the Nazi occupation, the company's main factory in Sochaux was forced to produce German military vehicles, with the result that it was destroyed by the French Resistance Army in 1943. Recovery was slow after the war, but the firs t post-war model, the 203, was launched in 1949 as an affordable family car.

The 1950s brought boom time to car manufacturers all over the world. Peugeot's new 403, launched in 1955, was an enormous success, followed by the 404 two years later. A series of new models were introduced over the following decades. Meanwhile, Citroen also recovered, turning out a series of cars which through their design and performance became classics, not least the 2CV small car. Originally conceived in 1936, the 2CV was all set for launch in 1939, until the German invasion led to the suspension of business. The car was finally launched in 1948 and astonished the industry with its economy and unusual appearance. The DS, launched in 1955, was no less surprising, with a sleek design and unique hydropneumatic suspension. Financially, however, Citroen remained vulnerable. In 1968, Michelin sold a large minority stake to Fiat, but that relationship failed to gel and was dissolved five years later. Finally, in 1976 the business was sold to Peugeot, and the two manufactures merged to create PSA, a new European giant to rival Ford and GM.

Four years later the newly formed PSA Peugeot Citroen acquired Chrysler's struggling business in Europe. Chrysler had acquired French company Simca in the late 1950s, followed by ailing British manufacturer Rootes Group in 1967. Originally founded in the 19th century as a bicycle-rental agency, Rootes had expanded into motoring in the early 20th century, buying up regional British manufacturers, including Sunbeam, Talbot, Hillman and Humber. Peugeot absorbed Simca into its own operations and set about improving the British company's performance under the new name of Talbot Motors. But while it developed the company's range and manufacturing capacity, the acquisition also brought severe financial problems, and the enlarged business ploughed into loss for much of the early 1980s. A strategy of cost-cutting brought the business back into profit by 1985, and sales reached record levels at the start of the 1990s. But in 1993 PSA was back in the red again after withdrawing from an unsuccessful attempt to conquer America. In 1997, the company merged its component business Ecia with rival Faure to create France's leading manufacturer of seats and exhaust systems, but an 18% slump in French car sales and restructuring costs generated new losses.

Having spent much of the 1990s repairing its finances by focusing on domestic business, Peugeot turned its attention at the end of that decade to international expansion, establishing joint ventures in China, Eastern Europe and Latin America. The company increased its holding in Argentinean manufacturer and distributor Sevel to more than 80%, and agreed joint ventures with Ford to develop a range of small diesel engines, with Toyota to build small cars for Europe, and with Dong Feng Motors to enter the Chinese market.

Christian Streiff was appointed as the new group CEO of PSA at the end of 2006 but was ousted by the board in March 2009. He was replaced on an interim basis by board member Roland Vardan until newly appointed CEO Philippe Varin could join the group from steelmaker Corus in June.

Last full revision 9th February 2018

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