PARIS - When Jean-Martin Folz replaced Jacques Calvet as chairman of PSA/Peugeot-Citroen a year ago, some inside the company breathed a sigh of relief.
After 13 years as chairman, Calvet's autocratic style was under growing criticism. Subordinates accused him of divisive tactics like boasting about Citroen achievements to Peugeot executives and vice-versa.
They also complained about Calvet's habit of speaking out against Japanese carmakers, Brussels bureaucrats and environmentalists. And the savior of Peugeot in the 1980s had come under attack for PSA's performance. Profits were under pressure and the company lacked a clear international strategy
But Folz is making people forget the Calvet era. Among other things, he has pushed the principle of 'one group, two brands.' Still he must prove that a strategy of cautious growth overseas is the correct one for the most Europe-dependent of carmakers.
'We have three basic challenges, a return to growth, innovation and profitability,' said Folz in an interview with Automotive News Europe.
'We have made some progress,' he said. 'We are merging all non-marketing, non-commercial activities of Peugeot and Citroen and we are bringing together the industrial and r&d operations.'
As a result, he said, 'Automobiles Peugeot and Automobiles Citroen will merge in a single company.'
The new chairman made an immediate impact. On 2 October 1997, a day after taking over for Calvet, he addressed 500 top managers for 30 minutes. He ordered them to increase market share, improve profits and develop more innovative products. He also asked his chief lieutenants to reorganize the company.
His goal is to complete the merger started 20 years earlier when Peugeot acquired Citroen. Calvet had kept the divisions separate and distinct, with their own plants and corporate structures.
'He wanted the Peugeot and Citroen organizations divided to assure that power remained concentrated in his hands,' said one critic of his former boss.
Folz told his team to unify engineering and manufacturing operations, with each of PSA's six main assembly plants in Europe dedicated to vehicles based on the same platform. He gave Peugeot and Citroen employees the same status.
Folz also gave more autonomy to the brand leaders, Frederic Saint-Geours of Peugeot and Claude Satinet of Citroen.
Rather than bring in outsiders, Folz chose Calvet's men to spearhead the reorganization. He formed a seven-member executive committee made up of managers who held top positions under the former chairman.
But opponents of the reorganization - like former PSA engineering boss Henri Saintigny, and Luc Epron, the product planning manager at Citroen - were pushed aside into relatively minor jobs.
Epron was made vice-president in charge of group product planning, acting as a liaison between Peugeot and Citroen. Saintigny was put in charge of some PSA subsidiaries making spare parts.
Folz made several quick decisions in his first three months. In November 1997, he ended Peugeot's ailing joint ventures in Guangzhou, China and Bombay, India. In December, he merged PSA's parts subsidiary Ecia with seat maker Bertrand Faure.
Folz also demanded that the new Berlingo/Partner commercial van get a sliding door by the end of 1998 - a year ahead of schedule, and at a cost of about FF300 million ($49 million). The door had earlier been rejected by Calvet to save money.
The break with the Calvet era was underscored in March, when Folz unexpectedly announced a FF2.7 billion net loss for 1997. Calvet reacted angrily, telling a French newspaper that 'the wayward accounts did not correspond to my period of management, but to the wishes of my successor.'
Folz knew then that PSA's results would improve this year. In September, PSA announced a FF2.2 billion profit for the first half of 1998.
Another symbol of a new era appeared in October. Peugeot announced that it would spend FF65 million to plant 10 million trees on a 24,000-acre spread in Brazil's Mato Grosso state.
'We used to spend no more than FF10 million for any sponsorship,' said Christian Peugeot, advertising and marketing manager for the Peugeot brand.
Another top PSA executive said that 'FF65 million is not a great deal to restore our image after Calvet's mistakes on environmental issues.'
Folz has kept up the pace of change. PSA recently announced plans to make small diesel engines with Ford, beginning in 2001. Negotiations took just four months.
'Folz and (Ford President-elect Jacques) Nasser committed themselves to the talks,' said a PSA insider.
Folz has also worked to smooth the somewhat rocky relations with PSA employees. In December, he held meetings with Peugeot and Citroen union officials. That was unheard of under Calvet.
Agreements signed this year extend union rights; restore employee profit sharing; create a single status for employees of both marques; and establish a retraining program for displaced workers.
Folz recently said talks would begin soon on the sensitive subject of a shorter working week.
But questions remain about PSA's global strategy. Folz has been far less aggressive in emerging markets than Louis Schweitzer, his counterpart at Renault.
Folz has said PSA must double sales outside western Europe to 600,000 units by 2002-2003. That would equal about 25 percent of PSA's total, compared to 16 percent last year.
But critics say he is not moving fast enough.
'PSA can probably reach the target of 25 percent, but that is still well behind Fiat or Volkswagen, which have already reached 35-40 percent (outside western Europe),' said Gaetan Toulemonde of Bankers Trust Alex Brown in Paris.
Folz said PSA's dependence on Europe 'might be an asset more than a disadvantage when you look at the present crisis' in emerging markets.'
'But I believe we should increase our sales outside Europe,' he said. 'In the past, there were people at PSA specifically in charge of the non-European business. Today, all of us are in charge, and it's a priority for us.'
Folz said PSA is targeting central Europe and South America because 'in both areas, the cars in the streets are European cars. I don't think there is anything like a world car or a global market.'
PSA's strategies for the two regions vary.
'In central Europe we want to increase our market share by developing dealer networks,' Folz said. 'We won't set up plants in an area which sooner or later will be linked to the European Union.
'In South America, we want to be a local manufacturer,' he said.
In January, PSA announced plans for a $600 million factory in Porto Real, Brazil to build 100,000 Peugeots and Citroens. The plant is due to open in 2001
In June, PSA took over Sevel, its assembly and distribution partner in Argentina. It also has a small assembly operation in Uruguay.
'We are aiming for an 8 percent market share in the Mercosur trading area by 2003,' Folz said. The share now is about 4 percent.
In Asia, he said PSA is targeting China, Malaysia and Iran. 'Peugeot was effectively pushed out of China, but Citroen operations are doing well.'
The joint venture with Dongfeng Motors builds the Citroen ZX and engines.
'We have two good plants, good people, a good car,' Folz said. 'We are developing a dealer network. We will make 50,000 cars this year and 75,000 in 1999. The joint venture is losing money only because our Chinese partner insisted right away on building a plant with a capacity for 150,000 cars.'
Folz is uncomfortable discussing products, brand strategy and sales goals. When asked about market share or product strategy, he often replies, 'ask Saint-Geours or Satinet.'
But he insists that Peugeot and Citroen remain full-line brands. In the upper-range, Folz said the slow-selling 605 and XM will both have replacements.
'We don't want one of them to become a niche brand,' he said. 'Customers who have a strong loyalty to each brand expect us to offer them a full range. If we specialize, one of the two would lose a significant market share, while the other would not increase its share.'