International -- European Business: Automobiles
Can Peugeot Go It Alone? (int'l edition)
The carmaker is riding high but remains vulnerable
Among European car makers, PSA Peugeot Citroen is looking lonely. Volvo went to Ford. Renault has Nissan. Fiat has joined forces with General Motors. Volkswagen is even teaming up with Scania in heavy trucks. Unfazed by such frantic deal-making, Peugeot Chairman Jean-Martin Folz believes staying independent is the only way to go. "We'll see who's right in the end," he says.
Indeed he will. Peugeot, the world's eighth largest auto builder, is doing well--for now. Thanks largely to its hot-selling 206 compact, sales and profits are up, and so is its European market share--Peugeot's 12.1% is second only to VW's 18.8%. "The key to succeeding in this car market is to rapidly produce cars as varied and attractive as possible and to do that at a competitive cost," says Folz. He figures Peugeot doesn't need to merge with anybody to do that. All it will take is sharp styling, solid engineering, and some joint ventures with other car companies to make low-cost components. Sounds simple.NO THANKS. Not that Peugeot hasn't had offers to merge. Industry insiders say the Peugeot family, one of the oldest automotive dynasties in Europe, rebuffed an approach from DaimlerChrysler last year. And in December, there were reports of a rift among members of the Peugeot clan, which holds 37% of the voting rights, prompting sell-off talk. But patriarch Pierre Peugeot, 67, the head of the supervisory board, denies the reports. "The family is completely united," he said at a recent news conference.
Yet the family's attitudes could change fast when European car sales come off their record levels and competition gets even stiffer. With quotas lifted on Japanese imports, companies like Toyota Motor Corp. are already targeting Europe's small-car segments, where Peugeot generates the bulk of its sales. Meanwhile, DaimlerChrysler and BMW are expanding their product ranges to include small cars. And thanks to their strategic alliances, all of Folz's rivals have greater resources to withstand any price wars.
For Folz, an industry outsider appointed chairman by the family-dominated board in 1997, the answer to these challenges is more joint ventures. They generate economies of scale without the headaches of integrating two companies, says Folz, 53, a graduate of France's elite Ecole Polytechnique and former chief operating officer at aluminum maker Pechiney. Peugeot already makes V-6 engines and transmissions with Renault and diesel engines with Ford.MISSED CHANCE. However, as its rivals strike ever larger alliances, they may be less inclined to do business with an outsider like Peugeot. Case in point: A plum deal for Peugeot to produce small car components for DaimlerChrysler fell through after the Stuttgart giant agreed to purchase a 34% stake in minicar specialist Mitsubishi Motors Corp.
Still, to its credit, Peugeot has overtaken GM and Ford in the European market, selling nearly 2.2 million vehicles there last year. Its operating profit margins are among the fattest: 4.4%, vs. 1.9% at market leader VW. That's the result of robust demand for the $10,000 Peugeot 206 compact and Peugeot's direct-injection diesel engines, which are highly efficient. Peugeot will launch three models this year, including its first compact minivan, the $16,000 Citroen Xsara Picasso; a 206 convertible; and an elegant Peugeot 607 sedan, priced at $27,000.
Good stuff, but will it sell outside Peugeot's traditional markets? The company gets 15% of its sales outside Western Europe. It's targeting South America and Eastern Europe, but growth there probably won't offset any slump in Western Europe. Folz may yet end up wishing he had done a merger with a deep-pocketed, global player while Peugeot was riding high.By Christine Tierney in ParisReturn to top