PARIS -- An industry analyst has written an open letter to PSA/Peugeot-Citroen Chairman Thierry Peugeot urging him to scrap a planned capital tie-up with China's Dongfeng Motor and raise capital in other ways.
"We see a risk of a Pyrrhic victory," Max Warburton, an analyst with Bernstein Research, writes. "The Dongfeng deal will close out strategic options," and the involvement of the French government and the state-backed Chinese automaker "is hardly likely to lead to improved efficiency, competitiveness and growth," the letter says.
Warburton advises the PSA chairman to let industry veteran Carlos Tavares work fast and aggressively to cut costs at the cash-strapped company. Tavares was most recently Renault's chief operating officer. He is expected to become PSA's operations chief on Feb. 19 and take over current CEO Philippe Varin's role after the final deal with Dongfeng is officially signed during a state visit to France by Chinese President Xi Jinping in March.
Tavares was instrumental at Renault in squeezing out 2.3 billion euros in working capital in three years by squeezing suppliers, cutting logistics chains, reducing work-in-progress and pushing more financial burden onto dealers. "That's more than twice the money you're apparently asking the Chinese for," Warburton writes.
Other ways to raise capital, Warburton says, are to:
- Sell PSA's controlling stake in the supplier Faurecia. "Why are you so hung up on this business? We understand it contains the original founding parts of PSA, but it's not a technology leader and owning it provides few obvious special benefits," Warburton writes.
- Halt research and development spending for a year. "Your products are competitive and you can afford to take a short break from spending," the analyst says.
- Close a Spanish plant and exit some of the most loss-making emerging markets.
The Peugeot family, the largest shareholder in PSA was meeting Monday to decide whether to give its blessing to a recapitalization deal under which the French state and Dongfeng will both take direct stakes in the group. The family's consent is needed so PSA can announce a memorandum of understanding on the deal alongside its 2013 results on Wednesday.
Fiat, Ford examples
Warburton urges Thierry Peugeot to follow the examples of Bill Ford and John Elkann, who hired chief executives who helped save their troubled family-controlled companies, Ford Motor and Fiat, respectively.
"Their family stakes remain intact," the analyst notes. "Their shareholders are happy. Neither are reporting to government officials. There are lessons for you and the rest of the Peugeot family from their experiences. It's not too late to turn back from Wuhan and fight on."