NEWS ANALYSIS

Family squabbles cost Peugeot clan control of PSA

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RENNES, France -- Infighting played a large role in the Peugeot family's loss of control of PSA/Peugeot-Citroen, industry watchers say.

After the death of family "strongman" Pierre Peugeot in 2002, discord among family members held back strategic decisions such as deepening ties with other automakers to enable the company to build up the scale necessary to survive in the modern industry.

"The structure of the Peugeot family's role in the company worked very well for a long time but when the family became divided, it became a negative influence," Bernard Jullien, director of the French think tank Gerpisa, told Automotive News Europe.

Many family members likely will be happy to cede control of the money-losing company for the possibility of getting a better return on their investments, Jullien said.

PSA today unveiled a 3 billion euro ($4.1 billion) capital increase in which China's Dongfeng Motor Group and the French state will each pay 800 million euros for 14 percent of the carmaker. The founding Peugeot family's holding will fall to 14 percent from its current 25 percent stake and 38 percent of voting rights, short of the one-third required to veto decisions.

The Dongfeng tie-up reflects the mood of many family members, especially the younger ones, who are not that interested in the automotive industry and wish to seek more opportunities outside of the sector, Jullien said.

The family has controlled the carmaker since its founding by French industrialist Armand Peugeot in the days of steam-powered cars in 1889, and through a bumpy merger with Citroen in 1975.

However, Jean-Louis Loubet, a professor at the University of Evry-Val d'Essonne and author of a book on the Peugeot dynasty, says the family hasn't had clear leadership in 10 years.

"The decision-making process used to be centralized in the hands of Pierre Peugeot, the family's strongman," Loubet told Bloomberg News. "Since his death in 2002, the family governance has become more collaborative."

Keeping family united

During his time as a member of PSA's management committee from 1972 to 1998 and as supervisory board chairman until his death in 2002 at age 70, Pierre Peugeot worked to keep the family united and the company independent. He refused to tie PSA with other groups through share exchanges, preferring to form ad hoc ventures on specific projects.

When Jean-Martin Folz, a protege of Pierre Peugeot, stepped down as PSA CEO in 2007 after 10 years at the helm, the family's divergent views on running the automaker became evident. Robert Peugeot, head of innovation at the company, sought the top job but his cousin, Thierry, blocked the move, arguing that tradition was to choose outside CEOs.

Since then, PSA has had two CEOs, neither with auto-industry experience. Christian Streiff, a former Airbus executive, lasted just over two years. Current CEO Philippe Varin is the former head of steelmaker Corus Group.

A main point of contention among family members centered on PSA's attempts to expand overseas, especially in China, as it sought to compensate for its eroding margins and sales in Europe.

The Peugeot family's and PSA's missteps prevented the automaker from expanding fast enough overseas to effectively compensate for its big losses in Europe, in contrast to French rival Renault's relative success in international markets, Gaetan Toulemonde, an analyst for Deutsche Bank, said. "PSA's international strategy is clearly a failure," he said.

BMW, Toyota ties

Under Peugeot family control, PSA has been slow to adapt to competitive threats and missed opportunities to deepen partnerships with BMW, Toyota and Mitsubishi Motors, insiders say.

Now PSA has been forced to take Dongfeng on board as a stakeholder after car sales in PSA's crisis-hit European home market plunged in the past few years. Robert Peugeot, head of the FFP family holding, and PSA CEO Varin, pushed through the Dongfeng deal, defeating Thierry Peugeot, PSA board chairman, who wanted to attempt to raise capital through the markets without bringing in new stakeholders.

The division among the family's senior members reflected PSA's inability to put a viable long-term strategy into place, Jullien said. "Chinese partners, in particular, were often reluctant to form an alliance with PSA because they were uninterested in PSA's goals to seek short- and medium-term profits over long-term opportunities, especially in developing markets," he said.

The Peugeot family's 2012 acquisition of 7 percent of Orpea, which operates assisted-living facilities, attested to the family's waning interest in retaining its legacy control of the automaker by looking for profits and shareholder value opportunities outside of the carmaking sector. The acquisition was also part of a diversification strategy that has reduced the automaker's share of assets in the family's listed holding company to 35 percent from more than 90 percent in 2000.

Bloomberg and Reuters contributed to this report

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

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