New record year for PSA which is resisting the downturn e1582708632134
New record year for PSA which is resisting the downturn e1582708632134

French automaker PSA, in the process of merging with Fiat Chrysler, posted record net profit in 2019, up 13.2% to 3.2 billion euros, despite the decline in the global automotive market, and going into to benefit its employees and its shareholders.

The group with five brands (Peugeot, Citroën, DS, Opel, Vauxhall) also posted record sales, at 74.7 billion euros (+ 1%), and an historic operating margin, among the highest in the sector, at 8.5% of sales both for the group as a whole (+0.8 points) and for the automotive division alone (+0.9 points).

These performances contrast with the situation of French rival Renault, which announced on February 14 that it plans to shut down factories as part of a vast savings plan after recording its first net loss in ten years (-141 million euros).

The president of the PSA executive board, Carlos Tavares, announced in the wake of these good results an increase in bonuses for employees, within particular 4,100 euros, or two and a half months’ salary, for the lowest incomes, less than twice minimum wage. “The record results (…) allow us to ensure that the bonuses for profit-sharing and participation are increasing,” he said on RTL.

Shareholders are also rewarded with a dividend raised to 1.23 euros per share, compared to 0.78 euros in 2018.

The recovery of the German subsidiary Opel was confirmed last year. Opel / Vauxhall’s operating margin reached 1.1 billion euros, or 6.5% of sales, while the group had set a target of 6% by 2026.

– Cost reductions pay –

This is the second consecutive record year for the automaker, which has benefited from a strategy focused on profitable sales at the expense of volumes.

Thanks to significant cost reductions, PSA has lowered its breakeven point, which is to say the number of vehicles from which it begins to earn money. This threshold fell from 2.6 million units in 2013 to only 1.8 million last year.

PSA had published in January sales down 10% in 2019, to nearly 3.5 million vehicles.

The group is suffering from its failure in China, where it has become a marginal player with barely 0.5% of the market after years of plummeting.

Chinese business cut last year’s profits by 700 million euros. PSA has announced cost reduction measures to remedy the situation.

On the other hand, the end of the activity in Iran, imposed by the American sanctions, had no financial impact because it was not consolidated.

The manufacturer now sells 90% of its production in Europe, a region where it is a solid number two behind the German Volkswagen.

This dependence on the European market can worry about growth prospects. But in the short term, unlike its German competitors, the manufacturer is immune to the decline in the Chinese market initiated for a year and a half, and which could worsen with the epidemic of Covid-19.

– Successful models –

PSA has notably benefited in recent years from its successful models, in particular the SUV (leisure SUV) Peugeot 3008 and 5008, and in 2019 from the Citroën C5 Aircross SUV.

The new Peugeot 208 and Opel Corsa city cars should support profitability in 2020.

The group considers itself ready to respect the average CO2 emission threshold of 95 grams per kilometer this year. All the new models launched now have an electrified version (hybrid or 100% electric) and the entire range will be electrified by 2025.

“We are eager to enter a new era with the proposed merger with Fiat Chrysler (FCA),” said Tavares. PSA intends to turn around the European activities of FCA as it has done with Opel. And the new Italian-American ally should greatly facilitate Peugeot’s plan to return to the United States.

Together, PSA and FCA are to form world number 4 in the sector, with nearly 170 billion euros in turnover and 8.7 million annual sales in 2018. FCA notably controls the Fiat, Alfa Romeo, Chrysler, Dodge, Jeep, Lancia, and Maserati.

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