Peugeot’s UK boss has cause to be confident the brand can steal market share from its rivals: its franchised network made its best average profit in a decade last year, its SUVs are in high demand, strengthening residual values (RVs) are improving consumer offers, and its electrification programme will put a hybrid or electric powertrain in every model line.
“We’ve been true to our word over the last two-and-a-half year period in our trading style,” said David Peel, who took over as managing director in early 2016.
“From March 2017, we stopped doing month-end deals. We don’t force month-ends. We walked away from over 5,000 fleet deals we would have done historically – some where our terms have been abused, passing cars to broker sites, for example.
“The desire has been there to walk away from market share to the benefit of our residual values and our future business.
“The core to our strategy is protecting our residual values, and we have evidence today that what we have done has paid off.”
Peel cited Cap HPI data for the Peugeot 3008, which stated that the current generation has increased its RV by 14 percentage points (to 50% at three years/20,000 miles) over its predecessor.
Peel said Peugeot’s guaranteed future values (GFVs) on new car PCPs would in the past have been set at 98% to 103% of Cap future value, which meant the company was effectively planning for low equity or negative equity for the customer. Now, instead of making new models cheaper, Peugeot has reduced the GFVs, to improve the equity.
“We’re building value into the GFV, so that the benefit will be with the customer in the change cycle,” said Peel.
“We don’t want to make the car cheap and pump out loads of volume, because if we do that we’ll be on a slippery slope and lose the RV.”
Product-wise, Peugeot is at the top of its game. The 3008 and 5008 SUVs have led its offensive, and gathered awards across Europe. The new 208 supermini due at the end of this year looks stylish and, with electric versions available from launch, should be well received.
Those SUVs leave the brand less reliant on its city car and supermini, the small cars once crucial for volume. And in-demand bigger-ticket cars are benefitting the dealers. Average dealership profitability in 2018 was 0.9%, or £140,000, as opposed to 0.6%, or £50,000, when Peel became managing director in 2016.
However, Peel said the bottom quartile of dealers muddy a bright picture somewhat, adding that the top 75% of the network made 1.4%, equating to £240,000 per site.
“Because our range is now quite more upmarket, and quite driven by SUV, as well as the RoS increase, the profitability has increased significantly as well. The vehicles we are selling are more expensive than three or four years ago, when we were very reliant on 108 and 208.”
After Peel’s arrival in 2016, he told the network he wanted to be “stronger together”, emphasising that he wanted to help the dealers and Peugeot UK to become more profitable and more effective.
That led to several changes, including allocating demonstrators to dealers on a contract hire basis, getting every dealer to sell vans, reducing the network size from 210 sales points to 183, and setting an end-of-2017 deadline for upgrades to the Blue Box showroom style. These changes prompted seven dealers to exit. In the past three years, the number of franchise owners has dropped by about 10% to 89.
Peel believes the returns now being achieved show he has lived by his word: “With Brexit and all the headwinds our industry will face this year, we feel really confident that we’re in good shape.”
He said a 183-site network is sufficient for the 5% total market share (across cars and vans) that Peugeot UK wants by the end of 2021. The brand finished on 4.32% market share (up 0.2ppts year-on-year) last year and Peel wants 4.5% in 2019.
“It’s responsible growth. We made 0.2ppts growth last year in a responsible way, and a profitable one for us and the network.” Following the modest increase in share, he expects Peugeot’s 2019 registrations volume to be similar to its 117,000 total of 2018 (car: 81,043; LCV: 35,962).
In January, Peel gathered all UK Peugeot dealers together at its national business meeting to outline the future product plan. He described 2019 as Peugeot’s “year of energy transition” – it will have a hybrid or pure EV version in all its model lines by 2023, starting this year with PHEV versions of the 508 and 3008, and the new 208 and 2008 coming at the end of this year will have pure electric versions available from launch.
Peugeot’s new Common Modular Platform (CMP) for small vehicles has been designed with electric powertrains in mind, so future new car buyers will choose from petrol, diesel or full electric across all models, including commercial vehicles.
Dealers will be required to invest in charging facilities, at their own cost. For most dealerships, the investment in 7kW chargers and infrastructure will cost up to £40,000 in total, said Peel. Dealers using Peugeot’s supply partner, NG, can have the investment on a two-year funding line from Peugeot’s bank, with a payment holiday until January 2020. This allows them to defer the costs while waiting for the first electric Peugeots to reach their showrooms. Multi-franchise sites that already have chargers will be able to use those if they meet Peugeot’s requirements.
“Everybody understands it (electrification) is the way forward, it is not optional. That is a real-life example of working ‘stronger together’. We care, we are genuinely interested in dealer profitability and that’s the sort of solution we put in place.”
Peel predicted that about 7% of Peugeot’s UK sales volume in 2020 will be hybrid or electric vehicles.
PSA Group’s view is that a consumer should not have their options narrowed by their desire for a low-emission vehicle. It wants conventional cars with powertrain options, rather than specific electric models, such as Nissan with the Leaf.
“In January, I made it clear to the network that we will not have a dealer in loss this year. If you’re in loss, you haven’t a future with our network.
“We used to have a lot of individual private dealers in the bottom quartile, so when we cut 30 dealers we took out a lot of the individual, historic loss-making dealers. Today, we have a couple of groups that are in that bottom quartile and they know that if they don’t do something, they won’t be a part of it .”
Considerably fewer dealers are losing money than three years ago, but those that are have been losing more.
“If I have 75% of the network making 1.4%, there’s no reason why the bottom quartile shouldn’t be making profit. Historically, we have just tolerated that. We are working very hard with that bottom quartile.” The main issues with these, he said, are overheads and people – either they have too many or they are underperforming.
Since PSA Group’s purchase of Opel Vauxhall, some of Vauxhall’s head office functions now operate from PSA UK’s base, in Coventry. Peel said: “We’re working openly together, and from a network development perspective we are looking daily at where there are benefits of trying to bring brands together, because Vauxhall had a lot more sites than we have.”
He said PSA’s positioning of its four brands (Peugeot, Citroen, Vauxhall and DS Automobiles) slightly differently means there can be some four-brand sites in the future.
Post-interview, rumours emerged of a PSA plan to acquire Jaguar Land Rover (denied by PSA and JLR’s owner, Tata) which would take the group to six brands and give PSA Group its first genuinely premium marques.
Peugeot Online, its digital new car sales platform, is “gradually building”, he said, and achieved about 3,000 sales in 2018, all fulfilled by dealers.
Most Peugeot Online customers opt for a handover at the dealership, and Peel said he was surprised by a recent consumer clinic, which found they still overwhelmingly want to interact with a dealer, even those in the under-25 age group.
“Our e-commerce platform gets about a million visits per month, and it’s selling very small volumes a month in reality. It is quite hassle-free, but I think it’s still mostly people doing research.”
Peel said the company is very open-minded, because dealer profitability must be secured. A dealer that is motivated, engaged and making a good return will perform better for the carmaker, he said.
In the national meeting in January, Peel’s message to the network was to let other people worry about Brexit, as it was out of their control. He emphasised that the brand was prepared and would move positively. Since Q3 2018, Peugeot had been building up stocks of new cars in case a WTO 10% import tariff was applied on March 29. In Q1, stock levels reached an all-time high at about 25% above normal, to ensure that it had competitively priced tariff-free cars.
“We told dealers that whatever happens, we had planned for it,” said Peel.
It had also prepared to update vehicle list prices to reflect the increase to wholesale costs, which Peugeot would not have absorbed, he said.
Peel has been in the role for three years, and hopes to stay at least three more. Knowing he will be in the job for at least two cycle changes leaves him conscious not to risk the brand’s medium-term opportunity by pushing for short-term market share.
“That is where I think Peugeot will have a huge advantage in the marketplace going into next year. Certain manufacturers have over-traded in certain places and RVs will come under more pressure. As that happens, we will be in a position to be very strong.”