PSA/Peugeot-Citroen's new chief executive Carlos Tavares has spoken of plans to cut model lineup by almost half and to turn Citroen's DS unit into a separate brand in an attempt to restore profits.
Explaining the plan, entitled 'Back in the race', he said model numbers would be cut "progressively" from 45 vehicles to 26 by 2020 and the company would look to expand its markets outside Europe, funded in part by bringing in Chinese partner Dongfeng and the French state as investors alongside the Peugeot family.
The development of DS as a full-fledged premium brand will be stepped up, PSA said in a statement.
Dongfeng and France will each contribute about half the money for a €3 billion capital increase planned by PSA in exchange for 14 each getting a 14% stake, according to an agreement reached in February. The family’s ownership will drop to 14% from the current 25.5%, ending their control of the 118-year-old carmaker.
Tavares became head of PSA at the end of March to guide a reorganization after cumulative net losses exceeded €7.5bn in the past two and a half years.
"The group will continue to reposition the three brands, while clarifying their lineups," PSA said today. Scaling back the range of models will allow the company to "improve market coverage and improve margins by targeting the most profitable segments."
The company said today that it is reorganizing sales operations, and reiterating a target to triple Chinese deliveries in partnership with Dongfeng by 2020, along with restoring profit in Russian and Latin American businesses.
"I am committed to accelerating the group's recovery by channeling all of our teams’ creative potential so that we can quickly get back on the road to profit," Tavares said.
And he told Autocar: “We must stop the cash burn, hopefully by 2016.
"Burning cash increases debt and helps pull the company down. To fix things, we must take three steps: increase operating profit by making sure our pricing is good, accelerate progress in reducing costs — one important way is to reduce stocks, which are higher than other companies — and establish better rapport with suppliers to control component prices.”
“Remember, we want to maintain our position as a generalist manufacturer. That’s the first thing. But we will be more selective with what we build in future. We won’t invest where there is no business. Everything I’ve learned tells me we must make cars to beat the competition, so buyers will want that car, not just a car. We have not yet identified models to drop, but there will definitely be a reduction.”
There are three metrics to the plan:
- recurring positive group operating free cash flow by 2016 at the latest.
- €2bn in total group operating free cash flow over the 2016-2018 period.
- A 2% operating margin in the automotive division by 2018, with a target of 5% during the next medium-term plan covering the period 2019-2023.
Jay Nagley, head of analysis and forecasting consultancy Redspy Automotive, said of today's announcement:
"We are so used to car companies boasting about the blizzard of new products they are planning to launch, that it comes as a bit of a shock to hear the boss of PSA Peugeot Citroen talking about reducing the model range.
"The interesting aspect of his plan is that he wants to build up the DS range into a fully-fledged premium range and also triple sales in China, which limits his room for manoeuvre.
"So where might the axe fall?
"Apart from the all-but-dead C-Zero/iON and C5, there are complications with all the potential victims.
"The obvious area is small MPVs, of which PSA has a bewildering number: C3 Picasso, Berlingo, Bipper and Partner, plus the slightly larger C4. However, many of them are based on successful small vans so, what are the cost savings by not putting a window and a rear seat into a van? Presumably one part of the plan is to drop badge-engineering so that one brand gets all the small MPVs.
"Much of the dead wood has already been cut out (e.g. C6, 4007), so PSA may be planning something more extreme.
"It could abandon the upper-medium segment altogether, but where does that leave DS as a putative premium brand? More radically, if the DS range is to grow, where does that leave mainstream Citroens like the C3, squeezed between the 208 and DS3?"
Tavares explains the goals of the 'Back in the race' plan