PSA Eyes Global Growth

PSA Eyes Global Growth PSA Eyes Global Growth

PSA Peugeot-Citroen tripled its profit target with a program to roll out 26 new cars, eight commercial vehicles and a pickup truck, as the French automaker seeks to solidify its recovery after a bailout two years ago.

PSA plans to generate automotive operating profit of 6% by 2021, compared with its previous target of 2% in 2014's Back in the Race strategy, the company said in a statement.

The goal has exceeded the 5% margin posted last year, according to data compiled by Bloomberg.

"Based on our financial reconstruction, we will launch a global product and technology offensive," CEO Carlos Tavares said in the statement. "We will ensure PSA registers a profitable organic growth."

Europe's second-largest carmaker after Volkswagen Group is seeking to build on years of restructuring that included shutting a plant, freezing pay and paring down its vehicle lineup. Those moves helped PSA reach earnings targets ahead of schedule and Tavares aims to show the company can compete toe-to-toe with rivals through his new Push to Pass program.

  Dividend Payout

The company is underscoring its renewed confidence by reinstating a dividend policy and plans a payout equivalent to 25% of profit starting this year. PSA last made a payment to shareholders in 2011.

The manufacturer's growth plan targets revenue increasing 10% by 2018 and an additional 15% by 2021. The strategy calls for one new car to be rolled out every year for each of its three brands, which include the mass-market PSA and Citroen nameplates and the upscale DS badge.

PSA also plans to push connectivity technologies while rolling out seven plug-in hybrids and four electric vehicles.

Tavares's main challenge will be to find an answer for PSA's dependency on Europe, which accounted for 62% of its car sales last year.

The market's decline to a two-decade low in the aftermath of the sovereign-debt crisis prompted a bailout by the French government and China's Dongfeng Motor in 2014, with each taking a 14% stake in the automaker.

While European auto demand has rebounded, the market is not expected to recover to pre-crisis levels in the near future. That will put a focus on the French company's plans to expand in Iran, China and Morocco, as well as develop the DS nameplate into a full-fledged luxury brand.

Although PSA is a major player in Europe, its global deliveries, which totaled 2.97 million vehicles last year, are small compared to its main competitors. French rival Renault sold 8.5 million cars together with its alliance partner Nissan, and VW Group delivered nearly 10 million autos worldwide in 2015.

PSA's relatively small size could be a handicap, as emissions regulations and consumer trends push automakers to invest in technology for electric vehicles and autonomous driving. IT spent €1.8 billion ($2.05 billion) on R&D last year. VW has invested about €4.4 billion annually in recent years on developing new vehicles.

  Coming to America

In addition to their bumper sales in Europe, the group plans to make a return to the North American car market.

Citroen exited the American market in 1974, while Peugeot pulled out in 1991. However, the company has had a corporate presence there up until just three years ago.

PSA is plotting a three-stage comeback that will start in 2017, when it will enter the North American market as a “mobility provider”—essentially providing car-sharing schemes—albeit not necessarily with Peugeot, Citroen or DS products.

It is considering a collaboration with Bollore Group, a strategic partner. The two companies already build a Bollore-badged electric car at the PSA plant in Rennes, and it is likely that a similar model would be used to reintroduce PSA to North American and enable it to conduct customer research.

“This is a way for us to understand the customers, the stakeholders, the regulations, to ensure we completely feel the pulse of that big market,” said Tavares.

The second phase of the North American return would be to introduce PSA Group vehicles into the car-sharing schemes.

“If we are successful as a mobility operator, from there we will have the opportunity to put in our own fleets of cars, as soon as they are compliant with US regulations. Of course, those fleets will remain under our control, as is normal in car-sharing activities. We will be able to ensure that our own cars are meeting the expectations of the local consumers,” explained Tavares.

“That’s the second step. And eventually, if we are successful, if our products in our fleets are well appreciated by consumers, we will go to the third step,  which is to sell our own brands’ products in North America, eventually with local sourcing."