Quarterly Business Magazine

Peugeot Maker Improves Profit Margins on More Costly Models

Posted :
Wednesday, July 24, 2019

Peugeot maker PSA Group’s profit margin widened to a record in the first half of the year through the sale of more expensive models, although the French carmaker joined a chorus of rivals in confirming the European market is slowing.

The company that also makes Citroen cars had a first-half recurring operating margin of 8.7% at its automotive division, according to a statement Wednesday. Looking ahead, it lowered market expectations, predicting a 1% decline in Europe and a 7% contraction in China.

PSA’s improved results stand out amid the gloom that has descended upon the sector as Chinese and European markets shrink. PSA depends heavily on European countries for its sales, which dropped 13% globally to 1.9 million vehicles in the first half. This month, Daimler AG issued its fourth profit warning in just over a year and car part-makers Continental AG and Faurecia SA have significantly lowered their expectations for global vehicle production.

Read More: Europe Car Sales Extend Downward Spiral With Worst Drop of 2019

“Our results are proving the sustainability of our performance despite a weakening of global markets,” Chief Financial Officer Philippe de Rovira told reporters. He said a key lever for improvement in the first-half was synergies with the Opel and Vauxhall brands acquired from General Motors Co. last year and the sale of pricier models like the Citroen C5 Aircross.

The company’s profit jumped 10.6% in the first half, beating analysts’ expectations, and the profit margin stands well above the company’s target to achieve at least a 4.5% average in the 2019-2021 period.

“PSA will not escape cyclical downturn and compliance headwinds,” Mainfirst analyst Pierre-Yves Quemener wrote in a note before the results were unveiled. “We still see margins declining through 2021.”

PSA is rushing to churn out electric and hybrid cars to comply with European regulations on car emissions and avoid fines. Electrified versions of half its lineup will be available by 2021, and across its entire product range four years later, according to a spokesman. In 2018, sales of all-electric and hybrid vehicles accounted for less than 1% of PSA’s registered sales.

“We are ready for electrification and to embrace the next technological challenges,” Chief Executive Officer Carlos Tavares said in the statement.

Since arriving in 2014, the CEO has turned around a struggling PSA by focusing relentlessly on cutting costs and adding scale. He has said the company is open to potential tie ups and held talks with Fiat Chrysler Automobiles NV earlier this year to build a new “super platform.” The discussions failed to result in a deal. The Italian-American company then nearly slipped into the arms of French rival Renault SA, before that combination finally collapsed.

By Ania Nussbaum

(Bloomberg)

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