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Will Peugeot Finally Switch Drivers? (Int'l Edition)

International -- European Business: FRANCE


The CEO was set to leave on Sept. 30, but it seems he may not go

For 13 years, Jacques Calvet has ruled French auto maker PSA Peugeot Citroen with an iron grip. On Sept. 30, he's set to make way for a new president, Jean-Martin Folz. But will he? At the Frankfurt Auto Show in early September, Calvet said cryptically: "Anything is possible"--hinting that he may stay in charge a bit longer. Conspicuously absent from Peugeot's presentation in Frankfurt was automobile-unit chief Folz, anointed as Calvet's successor in May by the Peugeot family, which holds 22.7% of the stock.

The $28.3 billion carmaker is likely to suffer if Calvet, who turns 66 this month, doesn't move on. Although he vigorously cut costs and brought Peugeot back from financial crisis in the 1980s, the company now cries out for a new management style. Calvet restored profits, but he failed to cut Peugeot's dependence on the French market and make it a global player. Other European carmakers, including Germany's Volkswagen and Italy's Fiat, overtook Peugeot. "Calvet's stance was defending Fortress France," says Daniel T. Jones, professor of management at Cardiff University in Wales. "Peugeot is now five years behind the competition. They need fresh blood and new vision."

Folz could be that fresh blood. But Calvet has forced Folz, 50, to remain in the shadows. A spokesman for the company says Folz has given no interviews since 1995, when the Peugeot family recruited him from Franco-Italian food company Eridania-Beghin-Say. Although he has kept a low profile, his open-mindedness and international perspective convinced the family that Folz was the right man to lead Peugeot when Calvet retires.

Folz's challenge will be to hammer out a strategy for long-term growth in major markets outside Europe. That means making big bets in Asia, Latin America, and North America. So far, Peugeot's efforts to tap emerging markets have been half-hearted compared with those of its rivals. Industry sources say that a 1985 joint venture in Guangzhou, China, has gone sour, and Peugeot is looking to sell its interest. Calvet invested in Argentina and India, but the company needs to step on the gas. "A company that isn't strong in the U.S., China, and Japan is going to have a tough time," says a top executive at a competing carmaker.

Time is running out. As Peugeot's rivals accelerate their restructuring, Calvet's improvements are already being overpowered. Over the past two years, Peugeot has suffered from eroding profits and ho-hum model development. In the first half of 1997, sales were $15.5 billion, up 6.3% over last year. But "their financial performance was woefully under that of competitors," says John Lawson, European auto-industry expert at Salomon Brothers International Ltd. in London. Lawson figures the company's numbers mask a first-half loss. Calvet blames Peugeot's woes on "a very poor French market," which saw auto sales plunge 23% in the first half. But a greater presence in foreign markets might have offset that.

BLURRED. To bounce back, Peugeot needs winning models and a clearer brand image outside France. Calvet squeezed costs by having Peugeot and Citroen models share the same components, engine, and body. But as a result, the two brands are hard to distinguish from each other. "They have not renewed their model line at the pace of competitors such as VW and Fiat," says Lawson.

The one exception is Peugeot's new 406 coupe, whose widely admired styling and engineering could drive sales in foreign markets. But industry experts say the model can't compete in the U.S. with established German and Japanese luxury brands. And at $14,000 to $20,000, the new Citroen Xsara is underequipped and overpriced compared with competitors such as Volkswagen's Golf.

As Folz prepares to take the wheel, a moment of truth is approaching for Peugeot, since a key protection that Calvet enjoyed is scheduled to disappear. In 1999, a trade pact that limits Japanese exports to the European Union is set to expire. And even if it were prolonged, Japanese manufacturers are moving production into Peugeot's backyard. Only carmakers who set their sights outside Europe will survive. "The next three to five years will be critical for the French auto industry," says Jones. For Peugeot, a new driver might be a good first step.By Gail Edmondson in Paris, with Katie Kerwin and Dave Woodruff in FrankfurtReturn to top

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