March 19 (Bloomberg) -- PSA Peugeot Citroen chose Louis Gallois as the first-ever chairman from outside its founding family as the carmaker seeks to tap the former Airbus Group NV head’s experience with turning around large French companies.
Fellow members of Peugeot’s supervisory board gave Gallois, 70, unanimous backing for the post, the Paris-based auto producer said today. He and Carlos Tavares, who’s scheduled to become chief executive officer on March 31, will oversee a reorganization of the unprofitable company that brings in Chinese manufacturing parter Dongfeng Motor Corp. and the French state as strategic investors alongside the Peugeot family.
Gallois’s career of more than 40 years has spanned major French engineering companies, including plane-engine maker Snecma and corporate forerunners of Airbus, as well as French state railway SNCF. He’ll be joining Europe’s second-biggest carmaker as the company expands outside its stagnant home-region market to end losses, while French officials try to stem job losses at home from the strategy shift.
“He’s quite representative of this French elite that navigates from state-owned companies to positions in the government,” said Bernard Jullien, an economist at French automotive think tank Gerpisa. “This could clearly facilitate the relationships, which have been bumpy recently, with the French state.”
Peugeot rose as much as 2.7 percent to 13.48 euros, the highest intraday price since March 10, and was trading up 1.7 percent at 12:23 p.m. in Paris. The stock has gained 41 percent this year, valuing Peugeot at 4.74 billion euros ($6.6 billion).
Gallois was tapped by the French government in mid-2006 to help run Airbus, at the time called European Aeronautic, Defence & Space Co., after the Toulouse, France-based plane manufacturer was rattled by cost overruns and delays on its largest airliner, the A380 superjumbo, that felled previous management. Following losses in 2007 and 2009, Airbus’s earnings rose in the following three years. He left the aerospace company in 2012, when he was commissioned by French President Francois Hollande to write a report on the country’s business competitiveness.
“With the nomination of Louis Gallois as head of PSA’s supervisory board, the company is embarking on a new stage of its history, a major industrial project, which the state is supporting,” Prime Minister Jean-Marc Ayrault said in an e-mail to Bloomberg. “The remarkable professional experience of Louis Gallois -- a very esteemed industrial executive -- along with his personality and wisdom, will bring a lot to PSA.”
A native of the town of Montauban near Toulouse, Gallois is a civil servant with a classic French education that included the HEC business school and the Ecole Nationale de L’Administration, a training ground for future government officials and the country’s business elite.
A lifelong socialist, he worked in the treasury department of the French Ministry of Economy and Finance and was a financial attache for Asia in the French embassy in Tokyo for two years before he moved on to the aerospace industry.
Gallois was assigned by the government in 1996 to run SNCF, which at the time was burdened by debt and plagued by conflicts with some of France’s toughest unions. Then-Transport Minister Bernard Pons described Gallois at the time as “an experienced labor negotiator” and “a true captain of industry.” The railway was profitable by the time he shifted to Airbus in 2006.
His “track record is quite good with regards to his performance,” said Sascha Gommel, a Frankfurt-based analyst at Commerzbank AG who recommends buying the shares. Gallois is “well aware of the needs of PSA in terms of investing not in France, not in Europe, but rather elsewhere. He might help to get the message across to the government.”
The Peugeot chairman’s position is going for the first time since its creation in 1972 to someone outside the founding family, whose representation on the board is being reduced to two seats from four.
Current Peugeot Chairman Thierry Peugeot and his cousin Robert will remain on the 14-member board to take the family’s seats, the carmaker said today. Jean-Philippe Peugeot will leave the board and become a non-voting adviser, while Thierry’s sister Marie-Helene Roncoroni will step down from the board.
Dongfeng Chairman Xu Ping and Deputy General Manager Liu Weidong will represent the Chinese partner, while Bruno Bezard, general director of public finance, will hold one of the two French government seats.
Peugeot reached an agreement in February under which Wuhan-based Dongfeng and the French state will each contribute about half the money for a planned 3 billion-euro capital increase in exchange for 14 percent stakes apiece. The founding family’s ownership will drop to 14 percent from the current 25.5 percent.
The reorganization brings to an end the Peugeot family’s control of the 118-year-old carmaker, which was unable to keep up with rivals as the automotive industry shifted from a regional focus to large worldwide players. Peugeot, which has been forced to slash costs as Europe’s auto market declined for six straight years, currently spends 1 to 2 percentage points of revenue less on R&D than the industry average.
The French automaker is aiming to remake its fortunes by tightening its relations with Dongfeng to expand in China, the world’s largest auto market. Dongfeng, set up in 1969, already operates three factories in the country with the French partner.
Peugeot, among those hardest hit as Europe’s auto market contracted to a two-decade low, reported a 177 million-euro operating loss in 2013, its second unprofitable year in a row. Cash consumption was cut 86 percent to 426 million euros, and the company said in February that it’s planning on positive operational free cash flow by 2016 at the latest. The carmaker won’t pay a dividend, the board reiterated today.
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