“There is a chance, that Peugeot may not exist any more in the future, if no solution is found.” Those were the stark words of Frost & Sullivan senior consultant Nicolas Meilhan following news, earlier this week, that the French government had guaranteed the automaker’s finance arm support of EUR7m in new bonds.

“Peugeot is in trouble, because they don’t sell enough cars, and it is of utter importance for the French carmaker that its bank branch, PSA Finance, is granted low interest rates. This is the objective, the security that would be provided by the fund government,” Meilhan wrote in a research note.

“In Germany, however, voices have been heard demanding the European Commission (EC) review this procedure, [because] it is considered governmental support, and to check, overall, if this is in line with EC rules. [Whether or not] the EC will approve this procedure, is unclear at the moment. It is interesting to note though, who initiated the review by the EC, namely, the German state of lower Saxony, which is the second largest shareholder of Volkswagen, the current number one auto OEM in Europe (PSA is second). 

Meilhan argued the problem lies not “really” with Peugeot but with the European automotive industry and the current economic climate affecting sales. Peugeot currently faces two key problems: selling enough cars and high manufacturing costs.

“In the current climate, consumers might have stable salaries, but the daily expenses for food, oil, and rent are on the increase. To save money, consumers buy less cars in order to reduce their cost of living. Especially the generation Y, those up to 30 years old, prefer their iPhone, and social networking via Facebook, instead of wanting to own a car anymore. This has an impact on the selling factor,” wrote Meilhan.

Comparing car manufacturing costs in European countries, he argued “the figures speak for themselves”: EUR36 an hour in France and Germany, in EUR6 in Poland, EUR10 in the Czech Republic and just EUR3 in Romania, (home of Renault’s Dacia and where Ford just started building its new B-MAX in a one-time Daewoo factory).

“The bottom line… is, it is very hard for Peugeot to compete with cars manufactured in eastern Europe,” Meilhan said.

Cutting production would only be a remedy if new jobs could also be found for those PSA laid off. Overall unemployment in Europe is about 18m, with 25% in Spain and another 25% in Greece.

“It could get to 25% Europe,” Meilhan reckoned. “If Europe can cope with such a high unemployment rate and not risk a social crisis, then cutting [PSA] production might be an option. If however, it could be problematic, it might be better to find another solution.”

He noted that Fiat-Chrysler CEO Sergio Marchionne has said any OEM not building 6m cars a year in 2015 would disappear – that currently accounts for Toyota, GM, Volkswagen, the Nissan–Renault alliance and Hyundai-Kia.

Peugeot, in comparison, produces around 3.5m cars.

“So, if Peugeot will not be able to either reduce its plants, or increase its sales, there is a chance [it] might not exist any more in the future,” Meilhan concluded.

PSA Peugeot Citroën and Opel-Vauxhall to share four platforms