Peugeot Says New 308 to Help Carmaker Beat Cash-Burn Goal

PSA Peugeot Citroen, Europe’s second-largest carmaker, said it may beat a goal of reducing cash consumption this year as new vehicles such as the 308 hatchback and 2008 crossover help the company boost prices.

The up-market model strategy “will help us to do better than halving our cash burn this year,” Maxime Picat, head of the Peugeot brand, said today in a Bloomberg Television interview from the company’s car plant in Sochaux, France. “The global situation is improving, and it’s a good time to launch the 308.” The stock climbed to the highest in almost 17 months.

Peugeot reported a 576 million-euro ($771 million) operating loss in 2012 as deliveries fell faster than the European car market contracted. The Paris-based company pledged in February to cut its cash-consumption rate 50 percent in 2013 after burning through 3 billion euros last year. The strategy includes closing a factory and cutting about 11,200 jobs by 2015 as well as adding more expensive models.

“Restructuring is coming through faster than expected, with almost 60 percent of planned headcount reduction already achieved,” David Lesne, a London-based analyst at UBS AG, said today in a research report. Peugeot’s carmaking operations “could achieve break-even” in the second half, said Lesne, who raised his recommendation on the stock to buy from neutral.

Stock Rises

Peugeot rose as much as 4 percent to 11.80 euros, the highest intraday price since April 2, 2012, and was trading up 0.3 percent at 11:33 a.m. in Paris. The stock has more than doubled this year, valuing the company at 4.04 billion euros.

The new 308, scheduled to reach French dealerships on Sept. 12 as part of a “fast launch” throughout Europe, will be “ a very strategic model” targeted at the region’s mid-size vehicle segment, Picat said today.

“We would like to be a reference generalist manufacturer, but with a quality standard steadily approaching” those of premium manufacturers, Picat said. “With the new 308, we will achieve that very reference, benchmark level of quality.”

The model, marketed as a compact car for urban families, will replace a version that went on sale in 2007, and will be priced starting at 17,800 euros. It competes with Volkswagen AG’s best-selling Golf in Europe’s largest model segment. First-half sales of the current 308 totaled 115,950 cars, representing 14 percent of the Peugeot brand’s deliveries.

Frankfurt Show

The 308 will be on display at the International Motor Show in Frankfurt next month and will enter showrooms in Germany, Italy and Spain following the French dealer debut. The car will be sold worldwide by the end of 2014, including vehicles to be made in China, the world’s largest auto market, Picat said.

Chief Executive Officer Philippe Varin outlined a plan in February to upgrade Peugeot models to differentiate the brand more from the Citroen division, which is meanwhile developing its own up-market DS line.

The 308 is coming out four months after the introduction of the 2008 compact sport-utility vehicle in May. Peugeot builds the crossover in Mulhouse, France and plans to add production in Wuhan, China, next year, and Porto Real, Brazil, in 2015, when it’s targeting 200,000 annual deliveries for the model.

“Expectations are definitely rising,” Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler, said today in a Bloomberg Television interview. “The products are better than people expected.”

Market Share

The Peugeot and Citroen marques accounted for 11.1 percent of car sales in Europe in the six months through June, a decline from 12 percent a year earlier and 13.1 percent for all of 2007, according to figures from the ACEA carmakers lobby. That compares with an increase for the Volkswagen brand to 12.5 percent in the first half of 2013 from 10.5 percent in 2007, the last year of industry growth in the region.

Including the Audi, Seat, Skoda and Porsche divisions, Wolfsburg, Germany-based VW is Europe’s biggest carmaker, and produces almost one in four autos sold in the region.

The current 308 ranked 10th in the so-called C segment in Europe that was led by VW’s Golf, Ford Motor Co.’s Focus and the Bayerische Motoren Werke AG 1-Series, according to IHS Automotive consulting company.

Cash Plan

Peugeot Citroen’s automotive division posted a 510 million-euro operating loss in the first half. The company reiterated the 2013 goal of cutting the cash burn by at least 50 percent in July, while holding back from repeating a plan to break even at that level in 2014, saying only that it was targeting a “very significant reduction” in cash burn that year.

“The real issue for Peugeot is Europe,” said Florent Couvreur, an analyst with CM-CIC Securities who recommends selling the French manufacturer’s shares. “As long as they’re not able to gain back market share, increase volumes and fill their factories, they will keep on losing money.”

IHS Automotive estimates that sales of the 308 will jump 80 percent to almost 123,400 cars in 2014 in western Europe from 68,490 vehicles this year. IHS predicts VW will sell more than 340,200 Golfs in the region next year, down 4 percent from 2013.

Peugeot’s profit-restoration strategy includes cooperation with Detroit-based General Motors Co. on developing new vehicles and jointly buying components for their European operations. The U.S. carmaker now owns 7 percent of its French counterpart as part of the alliance.

“GM is the natural partner of Peugeot,” Pieper said. The U.S. manufacturer is “likely” to raise its holding to 15 percent to 20 percent “to make sure they have important things to say.”

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