Peugeot to cull models as it targets return to profitability

Peugeot Citroen, Europe’s second-largest carmaker, has outlined plans to cut its model lineup by almost half and turn the Citroen unit’s DS vehicles into a separate brand in a bid to restore car division’s profit.

The carmaking unit’s operating margin will amount to 2% of sales by 2018, with the figure rising to 5% in the 2019-2023 period, chief executive Carlos Tavares said yesterday in his strategic review of the Paris-based company.

Tavares, 55, became head of Peugeot at the end of March to guide a reorganisation after cumulative net losses exceeded €7.5bn in the past 2½ years.

Peugeot said yesterday that the strategy hinges on reducing the number of models to 26 vehicles from 45, as well as a push into markets outside Europe, funded in part by bringing in Chinese partner Dongfeng Motor Corporation and the French state as investors alongside the Peugeot founding family.

“It seems to be the minimum requirement, but it’s a start,” Erich Hauser, a London-based car analyst at International Strategy & Investment Group, said by phone.

“When you run a big ship like this, you can’t expect to turn it around in a few years.”

Dongfeng and France will each contribute about half the money for a €3bn capital increase planned by Peugeot in exchange for 14% stakes apiece, according to an agreement reached in February.

The family’s ownership will drop to 14% from the current 25.5%, ending their control of the 118-year-old carmaker.

Tavares joined Peugeot in January from French arch-rival Renault, where he was chief operating officer, to succeed Philippe Varin as CEO.

The business plan puts Tavares’s stamp on the carmaker’s revival after Varin, 61, arranged to bring in the outside investors and started developing up-market models for the Peugeot brand and Citroen’s premium DS vehicles.

“The group will continue to reposition the three brands, while clarifying their lineups,” Peugeot said yesterday.

Peugeot was among the carmakers hardest hit as industry-wide European car sales contracted over six years a two-decade low, with the company’s market share narrowing to 10.9% in 2013 from 12.8% in 2007.

The company said that it is reorganising sales operations, and reiterated a target to triple Chinese deliveries in partnership with Dongfeng by 2020, along with restoring profit in Russian and Latin American businesses.

“What’s really interesting is that Tavares is clearly taking a leaf out of Renault’s Drive the Change plan,” International Strategy’s Hauser said.