PSA recovery stumbles as Euro car market stutters

PSA Peugeot Citroen boss Carlos Tavares is receiving praise for keeping his company's numbers looking positive even as its profit margins take a battering from currency fluctuations and a European car market that now seems much less certain of itself.

The good news for PSA is that its quarterly revenue rose by 1.6 per cent, something that will, on the whole, keep significant investors in the company (not least the French government and Chinese car maker Dongfeng) reasonably happy.

However, much of that gain was coming from Peugeot and Citroen's still nascent Chinese operations, which contributed a 2.7 per cent increase in money coming in – take out China and PSA's revenue from its car making arm actually slipped by almost a full percentage point.

While individual models such as the Peugeot 308 and 208 and the Citroen C4 Picasso and newly-introduced C4 Cactus are selling strongly (indeed, PSA is actually adding an extra shift at its Madrid factory to keep up with demand for the Cactus) the problem now facing the firm is one of uncertain markets.

A key part of PSA's recovery from its 2008-2012 nadir was to stop being so reliant on the saturated European market and to start expanding its global sales into key markets such as China, Russia, South America and possibly even a return to North American sales, something not attempted since the late eighties.

That strategy is hitting problems now though. While the European car market is still recovering and was up by six per cent in September, Russia is in serious trouble, thanks in large part to sanctions imposed following the Ukranian crisis and is not forecast to see its car sales slide not by the originally predicted 10 per cent, but by 15 per cent. Likewise, the South American markets are in turmoil, with predictions of a 10 per cent slip in sales now being talked of. Falls in the value of currencies, especially in Brazil and Argentina, have contributed to PSA’s stumbling incomes.

That means Peugeot and Citroen must re-focus on their traditional European markets, while also trying to keep the Chinese miracle alive. Neither will be easy though – China is set to post its slowest economic growth since the late eighties this year and while the European recovery is continuing, analysts are becoming spooked about a possible plateau in the market.

International Strategy & Investment is now saying that the European car market is “trending sideways” and with Europe’s banks currently undergoing stress tests and talk of another slowdown in the construction trade, car makers are now starting to look anxious that the recovery in sales may, at best, be a long, slow climb. At worst, we could see a dip again, and that would be the nightmare situation for a company like PSA, which has invested heavily in new models and corporate streamlining, all built on the basis of a recovering market for new cars.

Tavares said today that the “road back to a full recovery is still long and we should remain collectively focused on execution.”

In Ireland, the situation for the two car brands is looking reasonably healthy at the moment. Peugeot's 308 has given it a serious sales shot in the arm, and overall its volumes this year are up by 30 per cent so far, with a doubling of 308 sales the key driver. Citroen is doing somewhat less well, but has still managed to grow by 9.7 per cent this year (well behind the market average of 27 per cent) but those figures don't yet include the newly-launched C4 Cactus, a model which should give the brand significantly more sales traction.