PARIS -- It was just over a year ago that PSA Group CEO Carlos Tavares shook up the automotive world by agreeing to purchase Opel and Vauxhall, General Motors' stubbornly unprofitable European brands, for $2.2 billion.
The executive's rationale was relatively simple: If PSA was to grow, it needed to be more than just a French company. The Opel deal would create a "European champion," fueled by synergies from combined engineering and r&d, and Tavares's own obsession with eliminating waste from the production process.
Operating profits, Tavares promised, would start appearing in 2020, starting at 2 percent and reaching 6 percent in 2026. And he already had a template -- PSA's own turnaround plan, which he followed to haul the company back from near-death in 2013 to a 7 percent automotive operating margin last year.
So far, Tavares says, things are on the right track, and he has "no regrets" about buying Opel/Vauxhall. He has cut costs by negotiating concessions with European unions and sharing purchasing and other expenditures.
There have neither been large-scale layoffs nor factory closings, as many had feared, and PSA has even announced an investment at the imperiled Vauxhall van plant in Luton, England.
"We know we can turn around this company, and we are now seeing the first concrete results," Tavares said at PSA's 2017 financial results meeting at the company's new headquarters outside Paris.
Cost cuts first
Analysts say that Tavares has to start with cost cuts before tackling the more-difficult revenue side of the equation. "He's in his research phase at the moment," said Justin Cox, an analyst at LMC Automotive in London. "He's attacking costs, pooling purchasing power and leveraging engineering. Those are the kinds of things you can put into action right away, and you will see dividends quite speedily."
Other initiatives are a work in progress. A high percentage of Opels are sold through unprofitable channels such as short-term rentals. Sales have fallen sharply in key markets including the UK, though analysts say that is partly a result of reducing incentives and sales in less-profitable channels.
"It takes longer to make changes on the revenue side because product development takes time," said Juergen Pieper, senior automotive adviser at Metzler Capital Markets in Frankfurt.