PSA's revival starts with multi-billion pound bailout

The long-term rebuilding of PSA Peugeot-Citroën got under way recently when the French government and Chinese car maker Dongfeng made huge cash injections into the loss-making brand.

This year the two are putting a combined £2.46 billion into PSA, with a further £453 million due following a rights issue in the near future.

From next year another £657m will be released when recently issued warrants can be exercised by shareholders. PSA will receive a total cash injection of around £3.1bn. 

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

In exchange, the French state and Dongfeng will each receive a 14 per cent stake in PSA, matching the reduced share of the Peugeot family. 

The refinancing of PSA comes 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 just 26 models, down from today’s 45 models. These new models will target “the most profitable” global market niches.

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

PSA wants 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 break-even point to be lowered to 2 million cars. PSA also revealed that while it assembled 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 today’s levels. 

PSA expects it to take four years to hit an operating margin of two per cent, with a five per cent margin taking until the next 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.