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GOLDING’S TAKE: PSA Peugeot Citroen cuts night shifts as share price tumbles

By just-auto.com editorial team | 31 October 2005


It's autumn for profit forecasts - that time of year when forecasts start to flutter gently downwards.

Car markets around the world have been behaving reasonably well all year. But it is at this stage of the year with less than three months to go, that seasonal factors will cut in.

As too many manufacturers chase increasingly reluctant buyers, discounts tend to go up while volume remains static at best. The wise manufacturers recognise the likely impact of that in good time.

Peugeot is the latest (willing) victim for the autos analysts. After the stock exchange closed in Paris on Thursday of last week, PSA released its sales and revenue figures for the third quarter of the financial (calendar) year.

One glance at the section of the narrative headed "Outlook" tells all. The European auto market is expected to remain stable in terms of volume, it says, but the competitive environment is regarded as "aggressive." As a result, production programmes are being "significantly adjusted."

In the language of coded guidance to the stock market, that means that fewer cars will be made and that the absorption of the fixed overhead will therefore be less good. Profits, earnings and ratings all fall. So does the share price.

On Friday morning (28th), PSA lost 7.5% of its value - down four euros.

As the day went on, more detail emerged as to which models will be cut.

The Aulnay plant making Citroen C2, C3 and the Peugeot 1007 is losing a shift and will work only morning and afternoon.

The night shift also stops at Sevelnord which makes the MPVs, Peugeot 807 and Citroen C8 and the Fiat joint venture models. So too does the night shift at Rennes, home to the Peugeot 407, C5 and C6.

Peugeot says that its first priority is to defend margins. It does not want to be forced to drive product into the discount houses by building too many so it is cutting production early. The actions taken in the French assembly plants will reduce the volume by more than 100,000 cars.

The announcement on Thursday revealed that the refusal to get involved in the "intense promotional campaigns across Europe" had already cost market share. In September Peugeot Citroen market share was down half a percent in a market up one percent.

Outside Europe, things are not so bad. In the first nine months of the year sales were nearly three quarters of a million units - up 8.3% on a year earlier.

That comes from the recovery in South America and a substantial out-performance of the market in Central and Eastern Europe. In China, PSA performance was double that of the market - up 62%. PSA is now chasing a 5% market share in the fast-expanding market.

Peugeot has been exceeding expectations for some time now. Volume car manufacturers should not be returning operating margins of 4% if history is to be any guide. The latest news suggests that 4% is under threat. If that turns out to be the case, PSA will at least have the satisfaction of having warned the market that it was likely - rather than waiting too late and disappointing the investors.

Rob Golding