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Following the news in June that GM plans to shutter its Bochum plant in 2017, Peugeot SA (PSA) announced on 12 July that it will cut a further 8,000 jobs and that its Aulnay plant will cease car production in 2014. PSA is not the only carmaker that is struggling in Europe, but it is the most adversely affected, and so this announcement comes as no real surprise.
PSA is acutely exposed to weak new car demand both at home in France and across Southern Europe as a whole, where passenger car registrations fell by 14% in the first half of 2012 and are thus inevitably heading for five consecutive years of decline. In contrast, sales in Northern Europe were essentially stable in the first six months compared to the same period in 2011.
PSA’s sales fell by 14% year-on-year through to June 2012 – the same decline as in Southern Europe – but it is clearly not the only mainstream European carmaker that is struggling as a result of weak sales in the region. The French group is also not alone in being part of the “squeezed middle” that is being challenged by premium brands from above and Korean brands from below, as discussed in “The Conundrum of Japanese Carmakers in Western Europe”. In fact, Fiat-Chrysler, Ford, GM and Renault-Nissan all endured double-digit declines in European demand in the first half of 2012. So why is PSA taking such drastic measures?
Put simply, PSA’s Automotive Division is losing more money than any other European carmaker – €200 million a month – and has even had to withdraw its investment to launch in India. Click to Tweet! The reason behind this is that PSA has a smaller global footprint than its mainstream competitors, which are benefiting more from growth in other regions, albeit sometimes through an alliance partner, as in the cases of Renault-Nissan and Fiat-Chrysler. PSA is therefore a victim of not being present in the recovering US market and key emerging markets such as India, for example.
Finally, PSA consists of two mainstream brands – Peugeot and Citroen – and is therefore losing out in meeting rising demand for low-cost cars such as Renault’s Dacia brand and premium products such as the VW Group’s Audi brand. However, the DS range of cars is an excellent strategic initiative to take the Citroen brand upmarket, and the DS3 has recently been launched in Brazil, which makes sense given the premiumisation of that market, as discussed in “Vehicle Ownership and Affordability in Brazil – Moving On Up”.
Despite the French government’s understandable dismay and insistence that the deal must be renegotiated, PSA appears to have no option other than to stem its losses. Not doing so risks merely perpetuating the downward spiral and jeopardising the group’s very existence and, consequently, even more French jobs.