PSA Gets £3.1 Billion Fund

Published Date: 10th May 2014

The rebuilding of PSA Peugeot-Citroën has gotten under way recently when the French government and also Chinese car maker Dongfeng teamed up and made huge cash injections into the loss-making carmaker.

The two Giants are putting a combined figure of £2.46 billion into PSA, with a further £453 million due in the near future.

Next year another £657m will be released when issued warrants can be taken by shareholders. PSA stand to receive a total cash injection of £3.1bn.

The Money will primarily be used for new and fresh product development, the financing of the new EMP1 compact platform and for exciting new models such as a production version of the super-innovative 208FE concept.

In exchange for this substantial cash injection, the French state and Dongfeng will each receive a 14 per cent stake in the group, matching the reduced share price of the Peugeot family.

The refinancing of PSA comes just after company chairman Carlos Tavares announced a new four-year restructuring and recovery plan called ‘Back in the Race’. The most radical move will be to reduce PSA’s combined line-up to 26 models, down from today’s massive 45 models. These new models will have to target “the most profitable” global market niches.

PSA’s three brands – Citroën, Peugeot and DS will be repositioned to avoid any product overlap and given a more global footprint. PSA also wants to hasten plans to make DS a fully-fledged standalone premium brand for the wealthier customer.

PSA expects to triple the number of cars it builds in China with Dongfeng and “turn around the situation” in the South American and Russian markets so PSA’s operations in the regions are “profitable in the next three years”.

In the short term, Tavares’ plan calls for PSA’s annual breakeven point to be lowered to around 2 million cars. PSA also revealed that while it assembled over 2.3 million cars last year, the company’s break-even point was 2.6 million.

Lowering the break-even point will require a £205m reduction in fixed costs, reducing the factory build cost of each car by an average of four per cent and raising the average showroom transaction price by two per cent over the latest levels.

PSA expects it to take just over four years to hit an operating margin of two per cent, with a five per cent margin taking just under a decade. Tavares’ biggest challenge will be to change the corporate culture. He said he wants to see a “competitive mindset – a focus on execution, accountability and a profit culture” at PSA.