Although PSA/PeugeotCitroën is pushing suppliers harder than ever for price reductions, vendors say PSA has become a much more attractive customer in the last two years.

That is the outcome of a new survey of PSA vendors. The results differ sharply from surveys of suppliers to Ford and General Motors, which have become dramatically less attractive as partners during the same period.

France’s biggest carmaker is at the peak of its model cycle and the success of the current line-up has been good news for suppliers. No other volume OEM in Europe has matched the success of such niche cars as the Peugeot 206 CC and Citroën’s C3 Pluriel.

Suppliers also say that PSA is willing to reward cost saving ideas — something that isn’t happening at Ford and GM.

PSA’s purchasing structure is organised to benefit from technical and economical improvements from the supplier, says Herve Guyot, PSA’s head of purchasing. Guyot cites the importance of “collaborative development management, so as to optimise our development costs and pricings.”

But suppliers have criticisms of PSA, too.

“Platform policies make much bigger volumes and PSA expects price reductions accordingly,” says one survey respondent. “It’s not always possible.”

A number of suppliers said a single RFQ for a platform contract doesn’t reflect the real cost of producing parts for different models and brands.

PSA’s increasing quality demands were second only to Volkswagen, reflecting the fiercely competitive nature of the segments where Europe’s two biggest carmakers tough it out.

Survey respondents say pressure to cut prices has increased just as much at PSA as it has at VW.

In fact, the opportunity to generate healthy margins on PSA business has decreased over the last two years – more than Renault-Nissan but less than VW.

Suppliers complain of an “increase of responsibilities with less possibility of cost recovery.”

PSA’s willingness to share the benefits of cost saving ideas from suppliers has gone up over the two-year period as has its ability to maintain good channels of communication with its supply base. But one supplier noted that “after SOP, technical changes make re-sourcing possible and orders might be lost.”

Products to come

Already at the top of its product cycle, PSA will introduce the Peugeot 407 this year and Citroën’s C4, the Xsara replacement, in 2005. Industry sources say that the C4 Picasso mini-MPV variant due in 2005 or 2006 will feature third row seats to stay competitive.

Nevertheless sales in France have been depressed as part of a weaker overall European market. Analysts at Deutsche Bank say the first half of this year “will be extremely tough (operating profit down 30%) as they manage the launch of the new 407 and weak markets in France and the rest of Europe. However, PSA remains confident of achieving a similar full year performance in 2004 as in 2003.”

Morgan Stanley says profits won’t grow until 2005.

European sales figures for January 2004 show year-on-year Peugeot sales down 9.4%, and Citroën down 7.4%. Only VW brand sales decreased more compared to January 2003.

Seen in that light, PSA’s pressure on suppliers to reduce prices can be expected to continue. But the increasing interest in rewarding cost-saving ideas stands out.