Peugeot cuts product line and costs in turnaround plan

Mon Apr 14, 2014 11:10am EDT
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By Laurence Frost and Gilles Guillaume

PARIS (Reuters) - PSA Peugeot Citroen (PEUP.PA: Quote) will nearly halve its product line and focus investment on new technology in an attempt to return to profit, the struggling carmaker's new boss Carlos Tavares said on Monday.

Tavares promised to cut costs and excess plant capacity in order to halt losses by 2016 and restore Peugeot's carmaking business to a 2 percent operating margin two years later.

The reduced lineup will "focus the creative power of our teams on a more limited number of products that people want to buy", Tavares said. With fewer models developed for just one region, the total number will fall from 45 to 26.

After losing more than 7.3 billion euros ($10.1 billion) in two years, Peugeot struck a rescue deal in February to sell 14 percent stakes to the French government and China's Dongfeng Motor Group (0489.HK: Quote), part of a 3 billion euro cash infusion that bought the company more time.

Tavares, formerly second-in-command to Carlos Ghosn at Renault (RENA.PA: Quote), took over operational control from outgoing Peugeot CEO Philippe Varin the same month.

Investors were skeptical about the scale of the task outlined in Tavares' 'Back in the Race' plan. Peugeot shares, which have risen almost 50 percent so far this year, were down 6.5 percent at 12.80 euros as of 1002 ET.

"While they see themselves as back in the race, they don't seem to realize that the competition is moving forward just as quickly," London-based Barclays analyst Kristina Church said.

"They actually need to start spending ahead of the competition."   Continued...

Employees assemble cars at a production line of Dongfeng Peugeot Citroen Automobile factory in Wuhan, Hubei province, February 13, 2014. REUTERS/Darley Shen