Maxime Picat, director of PSA’s European operations since 2016, is facing a complex task this year: Managing the automaker’s brands, and its manufacturing and sales operations to meet the EU’s tough new emissions requirements. Picat spoke with Automotive News Europe Associate Publisher and Editor Luca Ciferri and News Editor Peter Sigal in early March, before the coronavirus crisis halted auto production and sales in Europe, about how he uses all the tools at his command to make sure PSA avoids emissions fines.
PSA CEO Carlos Tavares said in 2018 that PSA would have to sell 7 percent low-emissions vehicles (electric vehicles and plug-in hybrids emitting below 50 g/km) this year to remain compliant. Has that changed?
That was a worst-case scenario, in which diesel sales fall to 10 percent. Two years ago, we didn't know what would be the outcome of the diesel mix or what would be the buy-in of customers regarding electrification. Given that diesel is now stable at around 30 percent, PSA as a group can be compliant with 6 percent LEV (low-emission vehicles) sales.
So a 20-point difference in diesel share means you need to sell only one percentage point fewer LEVs?
You cannot make a direct calculation. In a case where we would only have 10 percent of diesel share, we would try to orient our customers toward the car lines, powertrains and trim levels that are most effective. We have also made tremendous improvements on the third important element, which is the CO2 level of internal combustion engines. Those are the tools to reach the CO2 target. What we can say today is that with 30 percent diesel mix and 6 percent LEV is that customers can buy whatever they want, even a 225 hp gasoline engine.
Tavares says that PSA can predict the monthly CO2 emissions with a deviation of 0.1 grams per kilometer, at the start of each month. How can you predict your unit sales per model so precisely?
First, what we are mastering at that level of certainty is the production flow. For example, if you have a country where orders are heavily toward cars with worse CO2 emissions, we don’t let our plant produce them right away. We will pilot the orders, possibly contact customers and tell them we will supply the cars later. After that, it depends on the orders and the customer behavior. We set a clear policy to our dealers to make sure that they are playing their role, which is to be CO2 compliant with internal combustion engines and having the right LEV mix. At the end it means we are reaching our targets with a very limited gap.
The CO2 emission target goes down to the dealer level. Are you basing your forecast on the registrations or the order book?
So dealers that are above target should delay the registration of high-emitting cars to the next month?
Or they can replace them with lower-emissions cars. Dealers have to think about margins, volumes and CO2, just like we do. It’s a three-dimensional era.
Are you calculating a bonus to dealers on CO2 emissions, volume or margins?
We have preconditions on the volume bonus, based on the CO2. Everyone has to play a part to help our society go green and reduce CO2 emissions. We play our role by putting the right technology in our cars. Government plays a role by incentivizing the sales of LEVs. In the middle of the chain you have the dealers. Their role is paramount, because they try to make the difficult task of choosing the right energy easier for the customer. It was important for us to bring dealers onboard (to sell LEVs). It has been a bit tough for them to accept it, but they tell us that they saw that PSA Group was prepared for the rollout of WLTP certification (in 2019) and is prepared for electrification — so let’s go ahead.
Will increased LEV sales — because plug-in hybrids and electric vehicles have lower margins — hurt PSA Group’s profits overall?
Today, the fact that margins are lower on a LEV than an internal combustion car is more or less diluted in global volumes, because LEV volumes are still quite low. And, in parallel we are trying to improve things like pricing, distribution costs, product costs. In the future we’ll need more levers like the vertical integration of electric drive components. That is important because it brings a significant part of the value cost back into our hands.
Is it fair to say that vertical integration means that you eliminate a profit center in the chain, which is the supplier?
That is correct, but at the same time, we don’t claim that we have the full skill set inside the company. So we have joint ventures with partners who are strong in R&D and know their business, such as Nidec for electric motors, Punch Powertrain for transmissions and Total Saft for battery cells. What we bring is our knowledge of the automotive industry, our manufacturing skill, our purchasing power. The sum of both can generate more value for shareholders and a better performing integrated chain.
In the early part of this year, retail sales fell faster than the overall market in Europe. So do you need to focus more on other channels, such as short-term rentals, which some people call “toxic” because margins are lower or nonexistent?
It’s true that retail sales are falling in many markets, and we have an increase in B2B (business to business) and demo sales at the same time. Those channels are only “toxic” if you lose money in them. The concept of short-term rentals is an interesting case. If you can market them with a margin it’s not toxic at all. Demo sales are a bit tougher because you are competing against retail.
What’s important is your competitiveness. PSA has some of the highest margins in the automotive business, so we are succeeding at that. We have a high-price/low-cost model, so we can be very effective in selling B2B. I think we can keep some of these channels nontoxic when that is not true for all carmakers.
Have you considered a subscription model for PSA vehicles?
We have a pilot project called Car on Demand under our Free2Move mobility brand. It’s a pure subscription model. It’s what we call “test and learn,” but we already have customers, and we’re refining the model. If it’s right, we’ll start it up officially.
Let’s talk about pricing. Peugeot brand was finally just above its benchmark last year, at plus 0.1 percent, and this year you are predicting a range of plus or minus 1 percent. How much of this was due to the true performance of the brand and how much was due to the performance of the benchmark?
I would say that it was normal business last year, us against the benchmark, with some product launches to support us. When we are at our benchmark, we have a little breathing room, and so we can give a range of plus/minus 1 percent, depending on what we or our competitors are doing in terms of launches. Life-cycle management is important, and the launch of a popular model can move the needle.
Citroen has just introduced the Ami, an electric quadricycle targeted at urban residents. At the same time, PSA is ending its collaboration with Toyota on the Peugeot 108 and Citroen C1 minicars. What is the future for the minicar segment?
We don’t have a definitive answer for that. If you say, do we need small-footprint vehicles that are clean and affordable and are able to create mobility? Then yes, we need that. But if the question is, is there room in the future for cars that are 3.7 meters long rather than 4 meters, that are thousands of euros cheaper but have exactly the same constraints in terms of regulation, electrification, crash protection etc., then the answer might likely be no.
People who live in cities don't need to drive at 90 kph and they don't need 300 km of autonomy, so the A (minicar) segment as we know it today might not be the answer to their needs — or what is the vision of their cities’ mayors. The Ami might be a good answer because there is a place for small, affordable and electric vehicles in cities.