It was always going to be a horrid position for PSA Peugeot Citroen to be in.
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The company was committed to announcing its results yesterday (Wednesday) in the full knowledge that the domestic opposition, Renault, would be announcing the following day.
PSA was a routine affair with a financial presentation in Paris followed by a quick flight to London and a repeat performance at the London Stock Exchange.
Almost as the plane took off, there was an announcement that some intrepid Spaniard was going to bid for the British Airports Authority. Suddenly, PSA was even less of an event. All the analysts and journalists who cover the transport sector switched out of cars and into airports.
It was a mixed blessing for Jean-Martin Folz, the group’s chief executive officer and the equally charming Yann Delabriere, the CFO. What they had to say was not what they would have liked to be saying. Results were as recently forecast but not as hoped. Suddenly they were playing The Pathe News to Renault’s main feature event.
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By GlobalDataAt 7am London time this morning (Thursday 9 February), Carlos Ghosn, Renault chairman and chief executive, presented the Ghosn Show to a massive audience of the world’s press. Since his arrival in the top job, he has been promising that The Big Plan for the company would be announced alongside the financial results for 2005. And here it was.
Expectations were high. Ghosn’s earlier rescue and revival of Nissan is already industry legend. He did not disappoint. He plans to develop a luxury car division, massively grow the model range, volume and international spread, and hike the dividend by – get this – an average of 25% a year!
Renault is a fragile company though, he concedes. Fragile companies don’t get less fragile as a result of making 3.2% operating margins (some joy here for PSA who scratched out a marginally superior 3.4% the previous day). But neither is good enough. The industry average over time is 3.6% and the companies that are growing in strength and global market share make six. Toyota, of course, makes seven.
We shall therefore, said Ghosn with a flourish, make six by 2009. Some resonance here. That’s what Folz said he would do: “Our group medium term targets have been maintained. We will make a 6% consolidated operating margin by 2009.”
“At 6% operating margins,” said Ghosn this morning, “we will be the most profitable European company.”
Well, not if PSA get there first, Carlos. And anyway, shouldn’t we be thinking about Porsche’s 15% margins?
PSA remains the larger of the two French companies in terms of sales and revenues. Renault has the Nissan partnership which will make a huge contribution to the development costs of all the new products.
PSA has partnerships with a number of companies on engines and platforms. It works with Toyota, Ford, Fiat, BMW, DaimlerChrysler and Hyundai and additionally gets higher and higher platform volumes through ‘commonality’ between Citroen and Peugeot models.
Peugeot Citroen didn’t like its slide short of its own profit estimates for last year.
To be fair, it had adjusted forecasts late in the year. But, when it became clear that it would miss the sales and margins it had hoped for, it went straight into reflective mode and strategy review, according to Folz speaking at the London Stock Exchange.
It had been a lack-lustre year with “sluggish” demand in Europe and very aggressive promotional measures by all players.
After cheerfully talking about group operating margins up at the 4% level not so long ago, we are now looking at margins in his auto assembly business just a tad over 2%.
And there hasn’t really been a crisis yet in terms of sales volumes which remain well above the cross-the-cycle average.
The comfort plucked from the disappointing figures was that the group had managed to score its 10th successive year of growth (just, and even that was dependent on the measurement scale).
In the automotive division, sales were up 0.4% to 3.39m units but because of the cost of incentives, sales and revenues were down an equal and opposite 0.4%. The “growth” was measured at group revenue level which sneaked in at +0.3%.
The positives came as a little from each of the finance division (Banque PSA Finance), the increasingly significant components business, Faurecia (20% of the group now), and the transport and logistics business, Gefco.
There is no real pleasure in seeing PSA in retreat. It has been modest on the up and is apologetic on the way back down. It is also a virtuous company in terms of what it spends time on. Quality, safety and environmental impact are all measured and reported about regularly.
For the next little while, no doubt, the focus for both PSA and Renault will be on each other. They both pledge rapid expansion to four million cars a year. They both propose double digit percentage savings in procurement and assembly costs over three years. They both will be aiming for efficiency and hiring to expand. They both will invest in low-labour cost countries and emerging markets.
It has always been strange that France should be the only major car-producing country with two national champions. One wonders if they could ever be friends and take the stage together on the same day and talk about a target of eight million cars a year and volume greater than General Motors.
Rob Golding
