PSA Auto Sector’s 3Q Revenues Fall; 6,000 Layoffs Planned

PARIS – PSA Peugeot Citroen now expects its automobile business to be in red ink by the end of the year, after a 1.6% decline in revenues in the third quarter.

Europe sales will be stable this year, says CEO Philippe Varin, and for 2012, “We don’t see how the market in Europe will grow.”

Premium Peugeot 508 eases overall volume loss.

Varin says PSA’s fixed costs will be trimmed by E400,000 ($560,000), or 8%, next year, including a 10% headcount reduction of 6,000 jobs. Another E400,000 will be saved in purchasing as contracts with key suppliers move to higher volumes.

Vehicle sales dropped 4.5% in the quarter as markets in southern Europe, especially Italy and Spain, were especially poor.

However, a rising product mix compensated for some of the downturn. Sales of PSA’s premium models, such as the Citroen DS line and the Peugeot 508 and RCZ, have held up well. The auto maker says they now make up 19% of its volume, compared with 13% last year and 9.0% in 2009.

Some 42% of PSA deliveries were in the C and D segments, up 3 percentage points from a year earlier, while sales of cars in the A and B segments were down 5 points to 39%.

Revenue for the group reached E13,450 billion ($18.8 billion) in the quarter, and E44,585 billion ($62.1 billion) for the year’s first nine months.

PSA is following a strategy of improving brand value and internationalization and defends its results in a presentation to analysts. Sales outside Europe in the first nine months made up 41% of its total compared with 37% a year earlier, which is the result of not improving in Europe, while growing elsewhere.

PSA sales rose in China and Russia, where its market shares were stable at 3.3% and 2.8%, respectively, and it grew share in Latin America from 5.3% a year earlier to 5.8%.

The auto maker suffered production problems this year because of the Japanese tsunami in March, losing 25,000 units of production. And it lost 45,000 units in September when the Italian supplier Agrati couldn’t deliver screws used in mounting bumpers, shock absorbers and other parts.

Agrati said in September that it had switched to a new logistics platform in August that wasn’t ready. PSA Chief Financial Officer Frederic Saint-Geours says the lost volume cost PSA about E205 million ($285.5 million) in revenue.

Varin says Agrati production is back to normal, and that over the next two years, it will require its suppliers of unique parts to have two plants in different countries. Revenues also were affected by increasing competition and price pressure beginning in September, Saint-Geours says.

Job cuts in 2012 will include 2,500 white-collar positions as well as temporary employees and production workers. The question of whether French plants will continue to build small cars is under consideration at PSA headquarters, Saint-Geours says.

While the auto division suffered, parts maker Faurecia saw a 15.9% rise in revenues, the Gefco logistics subsidiary was up 7.1% and Banque PSA Finance revenues climbed 6.2%, so the group still managed a 3.5% gain for the quarter. However, except for the finance arm, revenue growth was slower in the third quarter than in the first half.

Varin expects a poor fourth quarter for the automotive division. Although revenues remained 4.1% ahead of last year at the end of September, he expects competition and slow sales in Europe to eat away at that surplus, saying the automotive division “should be close to break even” at the end of the year.

Saint-Geours says in 2012 PSA will replace the Peugeot 207 with the 208. It also will launch upscale vehicles including the Peugeot 508 Hybrid, the Citroen DS5 and its hybrid version, and compact SUVs for each brand, the Peugeot 4008 and Citroen C4 Aircross.

He predicts PSA will more than double its global installed capacity outside Europe by 2015, from 760,000 units to 1.6 million, with seven plants planned or under construction in Russia, China, India and Latin America.

Varin says the European market will be roughly stable this year, while China will grow 7%, Latin America 6% and Russia 30%.

Vehicle prices were down about 1% in September and October, Varin says, adding they are not expected to improve next year because overcapacity in Europe will persist. With all the headwinds, he says, “Our strategy (to move upscale and internationalize) is even more relevant, and this leads us to accelerate and amplify our action plans.”

He says prices in the A, B and C segments started falling in June, and PSA lost share during the summer as the auto maker held its prices steady. But in September, with the competition offering 10%-20% discounts, PSA decided it had to follow.

The replacement for the Peugeot 207 will be produced in France and will be profitable because it will cost less to build, Varin says, noting because the vehicle will be new, “we will not have to put more money on the table to sell it.”

However, he adds, “when and where we produce the (next) Citroen C3 will be an important decision” to be made in the next few years.