Peugeot Hires Ex-Renault COO Tavares to Lead Automaker

PSA Peugeot Citroen hired former Renault SA executive Carlos Tavares to lead the French manufacturer out of a six-year slump in European demand that has sapped the finances of the region’s second-biggest carmaker.

Tavares, 55, will replace Philippe Varin, the 61-year-old current chief executive officer, in 2014, the Paris-based manufacturer said in a statement today. Tavares will join the management board on Jan. 1 and take over as CEO later in the year, Peugeot said, without specifying the date.

Tavares, who left his position as Renault’s chief operating officer three months ago, will need to return Peugeot to profit, stop cash consumption and expand outside Europe. As the third CEO to lead the automaker in the seven years, he will also be charged with bringing stability to Peugeot in an industry where strategic plans take years to unfold.

“He is a highly regarded manager,” said Jose Asumendi, a London-based automotive analyst at JPMorgan. “After working for some time with Varin to understand the dynamics of the group, he would be an excellent candidate to lead the transformation.”

Peugeot gained 52 cents, or 5.1 percent, to 10.75 euros at the close of trading today in Paris. The stock has advanced 96 percent this year, valuing the manufacturer at 3.81 billion euros ($5.14 billion).

Tavares left Renault at the end of August, two weeks after Bloomberg published an interview with him saying he’d like to run another automaker because CEO Carlos Ghosn, 59, planned to stay for the foreseeable future.

Renault Experience

Tavares spent more than three decades at Renault and affiliate Nissan Motor Co., rising through the ranks to eventually take over as Ghosn’s second-in-command at the French automaker. Tavares, who races cars himself, was working to add a sports-car brand and luxury marque at the Renault group.

Before departing, Varin plans to focus on strategic discussions with potential partners, Peugeot said today.

The automaker is holding talks to expand an existing collaboration with Dongfeng Motor Corp. to lower Peugeot’s reliance on Europe, where it sells more than 50 percent of its vehicles. Peugeot has proposed a capital increase of at least 3 billion euros, in which Dongfeng and the French state would take equal holdings of about 20 percent, people familiar said last month.

Smaller Stake

That plan has hit a snag as Dongfeng seeks a smaller stake than first discussed, people familiar with the matter said last week. Dongfeng is weighing buying about 10 percent, half the size of the original proposal, said the people, who asked not to be identified discussing private talks. The Chinese company is more interested in expanding an existing industrial venture than purchasing a stake, they said.

“To get Tavares would be attractive,” Erich Hauser, a London-based automotive analyst with International Strategy & Investment Group, said in an e-mail. “Firstly, Tavares is a real ‘car guy.’ Secondly, he spent his career at Renault-Nissan and perhaps this is being seen as a potential role model for a Dongfeng-PSA alliance.”

A key challenge for the new chief will be returning the French manufacturer, which reported a first-half operating loss of 510 million euros in its automotive unit, to profit. The carmaker is also working to reduce cash consumption by 50 percent this year to 1.5 billion euros.

Under Tavares, Renault reported unexpected growth in first-half profit as labor-cost reductions and higher vehicle prices more than offset an industrywide slump in European deliveries. When Tavares oversaw North America for Nissan, 43 percent owned by Renault, he helped the company earn 209 billion yen ($2.05 billion) in the region in the year ended March 2010, versus a 46.7 billion-yen loss in 2009.

Factory Closing

Peugeot first hired Varin as CEO in 2009, following the departure of Christian Streiff, and his contract was renewed by the supervisory board on March 12 for another four years.

Varin has reduced investments, closed a factory on the outskirts of Paris and moved to eliminate 11,200 French jobs. The CEO, who had not worked in the auto industry before joining Peugeot, also cut the management board to four executives from six to streamline operations.

More recently, he signed a three-year labor agreement with the company’s unions to reduce overtime pay and freeze salaries in exchange for investment guarantees and a pledge not to close any French factories before 2016.

“This regular changing of CEOs and the overall instability of the management board over the last few years is more proof of the lack of clarity,” Florent Couvreur, an analyst at CM-CIC Securities who recommends selling the shares, said today. “Peugeot is a enormous mammoth that will require time to evolve.”

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