GM's French partner PSA on track to achieve turnaround

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PARIS -- PSA/Peugeot-Citroen, the new alliance partner of General Motors, faces tough times, but the automaker can achieve a turnaround as early as this year, analysts say.

"They are not out of the woods, but the situation is not as desperate as some people might think," Gaetan Toulemonde, an analyst for Deutsche Bank, told Automotive News Europe. "I expect the cash burn to be much more manageable and more limited beginning the second half of this year and into next year."

Toulemonde's comments were echoed by investment bankers Morgan Stanley, which said PSA's difficulties will peak by the summer and improve later in the year when many of the measures taken by the automaker to raise cash and reduce costs take effect.

PSA said it expects to see improvements in its balance sheet in the second half, helped by the recent launches of a key model, the Peugeot 208 subcompact, in Europe, along with the introduction of the Peugeot 308 in South America and a new Citroen DS model in China.

Peugeot hopes to sell 550,000 units of the 208 in 2013 worldwide, including 420,000 in Europe.

"Our cost-cutting program, new model launches, and growth in markets such as China, Brazil, and Argentina will pay off this year," a PSA spokeswoman told Automotive News Europe.

GM alliance

PSA's alliance with GM won't help the French company in the immediate future. The automakers aim to save at least $2 billion annually within five years, split about equally between the partners. The results of their efforts to share purchasing and logistics and build cars on shared vehicle platforms will start to be seen in 2016.

PSA has said it aims to reduce its net debt by selling 1.5 billion euros of its assets and reducing costs by 1 billion euros. So far, the company has raised about 750 million euros in asset sales, including selling its headquarters offices in Paris for about 250 million euros and its Citer rental car business for 440 million euros.

The company plans to sell a stake in Gefco, its logistics subsidiary, later this year. Gefco's revenue was down 4 percent to 935 million euros in the first quarter due to lower volumes in Europe.

Analysts believe PSA won't seek to sell a stake in the supplier, Faurecia, which the carmaker controls. Faurecia was the second-biggest revenue contributor to the group after automotive in the first-quarter with sales rising 8 percent to 4.3 million euros. A 40 percent gain in Faurecia sales in North America and a 24 percent gain in Asia offset a 2 percent dip in Europe.

Faurecia's growing business, along with a 6 percent revenue rise at the automaker's in-house bank, helped limit PSA's quarterly revenue slide. Group revenue for the quarter fell by 7.3 percent to14.3 billion euros with automotive division sales down 14 percent to 9.7 billion euros.

Southern Europe exposure

PSA's global vehicle sales fell 14.2 percent to 790,100 in the quarter. A 20.2 percent drop in Europe to 459,400 units was far above the industry decline of 8 percent, largely because of PSA's heavy exposure to southern European markets, which account for 56 percent of the automaker's European vehicle sales.

Toulemonde said PSA likely will not require another capital injection this year after GM bought a 7 percent stake, even if the company is unable to sell a sizeable share in Gefco.

"If PSA burns through 1.5 billion euros in the first half and a couple hundred million euros in the second half, you will still end up with lower debt than last year whether they get what they want for Gefco or not," he said.

UBS analyst Philippe Houchois also sees positive signs for the future. "There is a lot of extreme negativity around PSA liquidity now, but working capital cycles can be extreme and tend to reverse over time."

You can reach Bruce Gain at bgain@crain.com.

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