PARIS, April 14 — PSA Peugeot Citroen’s new boss Carlos Tavares vowed to halt losses and restore profitability at its core manufacturing division in 2018, as he set out a long-awaited recovery plan for the struggling French carmaker.

Unveiling his ‘Back in the Race’ plan today, Tavares promised to achieve a 2 per cent operating margin and reverse losses in Europe and emerging markets by reducing costs, excess plant capacity and the number of vehicles on offer.

Investors welcomed a return to positive earnings goals but were sceptical at the size of the task. Peugeot shares, which have risen almost 50 per cent so far this year, were down 2.8 per cent at 0909 GMT.

“While they see themselves as back in the race, they don’t seem to realize that the competition is moving forward just as quickly,” Barclays analyst Kristina Church said.

“They actually need to start spending ahead of the competition.”

The carmaker, which slashed capital expenditure to 4.4 per cent of revenue last year, pledged to develop new plug-in hybrids, four-wheel-drive powertrains and self-driving cars - all while limiting investment to 7-8 per cent of sales, compared with 8-10 per cent for mass-market peers.

“We are going to focus the creative power of our teams on a more limited number of products that people want to buy,” Tavares said in a presentation to investors.

After losing more than €7.3 billion (RM32 billion) in two years, Peugeot struck a rescue deal in February to sell 14 per cent stakes to the French government and China’s Dongfeng Motor Group as part of a €3 billion cash infusion.

Tavares, formerly second-in-command to Carlos Ghosn at Renault, took over operational control from outgoing Peugeot CEO Philippe Varin that same month before his formal appointment in March.

Right direction

The margin goal, while short of the Volkswagen brand’s 2.9 per cent and far behind such rivals as Toyota, nonetheless cheered analysts: Peugeot’s €1.04 billion auto division loss last year amounted to a negative 2.9 per cent margin.

“PSA is heading in the right direction,” said Erich Hauser of ISI Group in London.

The turnaround strategy “does remind us of what Tavares did at Renault”, Hauser said. “Europe can continue to deliver positive surprises.”

The streamlined model offering will help Peugeot’s struggling operations in Russia and Latin America return to profit within three years, Tavares said.

Reiterating the carmaker’s commitment to halt cash burn by 2016, he targeted cumulative positive cash flow of €2 billion over the next three years, 2016-18.

Peugeot will make full use of a competitiveness deal struck with labour unions at the height of the crisis to reduce costs and headcount, Tavares added, cutting overall wage costs to 12.5 per cent of revenue in 2016 from 15.1 per cent last year.

In a sign that more strife with unions may be around the corner, Tavares said Peugeot planned to move 20 per cent of research and development activities out of France.

It will save more cash by doubling the supply of parts from lower-wage countries and “rightsizing” French plants, he said, while raising production at more competitive sites in Slovakia, Spain and Portugal.

 

“On the pretext of financial objectives, Mr Tavares’s roadmap represents a further step against wages and jobs,” said Jean-Pierre Mercier, an official with the left-wing CGT union. — Reuters