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Peugeot’s Auto Division May Report Second-Half Loss

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Philippe Varin, CEO of PSA Peugeot Citroen
Philippe Varin, chief executive officer of PSA Peugeot Citroen, gestures while speaking at a news conference in Paris. Photographer: Antoine Antoniol/Bloomberg

July 28 (Bloomberg) -- PSA Peugeot Citroen, Europe’s second-largest carmaker, said its auto unit may lose money in the second half as demand in the main European market slumps.

The manufacturing arm will be “close to breakeven” in the latter half of 2010 after earning 525 million euros ($683 million) in the first six months, Chief Executive Officer Philippe Varin said. The shares fell as much as 5.9 percent.

Peugeot predicts a second-half contraction of the European market, which accounts for almost two-thirds of its sales volume, as government scrapping incentives run out. The European market will shrink 7 percent for the full year, the carmaker said today. European sales grew 0.6 percent in the first six months, according to the Brussels-based European Automobile Manufacturers’ Association.

“In the second half you’ve got nascent pricing risk coming in,” said David Arnold, a London-based analyst at Credit Suisse, which has an “underperform” rating on Peugeot shares. “Consensus is going to have to take down estimates for the full year.”

Peugeot dropped as much as 1.47 euros to 23.41 euros and was down 4.1 percent to 23.87 euros as of 3:58 p.m. in Paris trading. The shares are down 0.9 percent this year, valuing the carmaker at 5.6 billion euros.

The carmaker said demand for the new Citroen C3 subcompact and Peugeot 3008 and 5008 minivans helped boost first-half revenue 21 percent to 28.39 billion euros. Peugeot posted net income of 680 million euros compared with a loss of 962 million euros a year earlier.

One-Time Gains

The auto unit’s jump in operating profit, which contributed to the rise in net income, came largely from gains aside from the increased car sales, Credit Suisse’s Arnold said.

Auto earnings, excluding increases from lower raw-material costs, currency effects and capitalization of research and development, amounted to 250 million euros, missing expectations ranging from 300 million euros to 600 million euros, Arnold said.

CEO Varin has pledged to expand in emerging markets to reduce dependence on Europe. Helped by a second Chinese joint venture announced this month, the carmaker said today it aims to generate half of its unit sales outside Europe by 2015. Peugeot expects European market growth of “a few percent” in 2011, Varin said in an interview.

The company is “starting to see the benefits” of recent cuts at two French plants and is counting on new models to have factories running near capacity by 2012, compared with 89 percent today, Varin said. Peugeot’s European market share gained 0.8 percentage points in the first half to 13.7 percent. There is “no need” for further plant cutbacks, he said.

Chinese Growth

Peugeot forecast 1.5 billion euros in earnings before interest and taxes for 2010, compared with last year’s 689 million-euro loss. The carmaker also predicted an expansion close to 9 percent in Latin America’s auto market and “double-digit growth” in China this year.

It may take the French carmaker a total of 15 years to claw back the share of Chinese registrations it commanded in 2000, Varin said in the interview. He predicted an 8 percent market share in 2015 after Peugeot adds a joint venture with China Changan Automobile Group Co. to production it already shares with Dongfeng Motor Group Co.

The Dongfeng venture will increase its market share to 5 percent by 2015 from 3.4 percent today, while Peugeot-Changan will aim for 3 percent of the market, Varin said.

To contact the reporter on this story: Laurence Frost in Paris at

To contact the editor responsible for this story: Kenneth Wong in Berlin at

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