Despite two profit warnings for 2005, PSA Peugeot Citroen's chief spokesman for the UK, Jonathan Goodman, said that, seen in the context of a declining European market, things aren't too bad and this year's "disappointing" earnings should be boosted in 2006 as new models arrive.

PSA Peugeot Citroen last week issued its second profit warning in just three months and now expects to report operating profits of EUR1.9bn (GBP1.3bn) for 2005, or 3.4% of sales.

Last October, it warned that profits would be less than 4% of sales. The French automaker sold 3.39m vehicles in 2005, up 0.4%, at a time when most of Europe's carmakers are struggling with weak sales.

Speaking exclusively to just-auto during the right-hand drive 407 coupe media launch, Goodman, PSA's London-based director of corporate communications and external affairs, said the results were "below expectations" particularly due to a "disappointing" fourth quarter that affected all major automakers in Europe, when sales fell around 2.5%.

He noted that, as part of its on-going cost-cutting project, PSA has reduced its inventory and consequently shipped fewer cars to dealers in the first quarter - the corresponding volume reduction affected results.

Signalling a new tack for the firm, whose Peugeots and Citroens are popular company car choices here in the UK, Goodman noted that PSA has "shied away from discounting this year" as "you cannot sell to fleets if you're losing money".

Asked if the pending launch of the new B-segment 207, which will ultimately replace the popular 206 (5m worldwide so far and counting) signals the raising of an axe over PSA's Ryton 206 plant near Coventry, Goodman stressed the plant would soon be the main European plant for the model line and was scheduled to make 108-109,000 units this year.

"The 206's [remaining] life depends on demand and we will carry on making it if the demand is there.

"Post 206, it's too early to say [about Ryton's future]."

Goodman said that, although there was an industry trend to move some production to eastern Europe, it was unlikely that PSA would do much more than it has done so far.

He said the company already had the joint venture plant with Toyota in the Czech Republic that builds the Peugeot 107 and Citroen C1 alongside the Japanese firm's Aygo while  a new 207 plant in Trnava, Slovakia, comes on-stream in mid-2006.

"But we have a big industrial base in western Europe and there's no suggestion [we would shift that production]," he added.

Goodman noted that, overall, PSA plants achieve 108-110% in the Harbor productivity index and said "you can't achieve that by shutting plants".

Ryton, too, had made "tremendous improvements in productivity".

"Right-first-time has risen from 55 to 78% and that puts it up amongst the best of our plants," Goodman said. "It has to be at the top of its game and under a new plant director it is achieving that."

Noting that the company's relationship with the car working unions at Ryton has generally been good - he acknowledged a little "niggle" over recent shift axings - Goodman said PSA had a little concern over the creation in 2007 of a 'super union' - when the GMB, Amicus and TGWU unions are scheduled to combine.

"There is an underlying concern there. We hope there will be no posturing [with one or other of the merged factions wanting to attract attention through industrial action]," he said.

Goodman said all European car makers are facing essentially the same issues at the moment - all need to reduce costs and increase efficiency.

He said PSA had taken out EUR600m a year in costs but EUR300m of that gain was being eaten up by raw material cost increases.

He said the group expected a better 2006 with new products and the first full sales years for cars such as the 407 coupe, C6, 107, C1 and 1007.

Coming are the new 207 and a redesign for the popular Citroen Picasso minivan.

"You could say we're cautiously optimistic," Goodman added.

Graeme Roberts