Peugeot, the French auto giant seemly bent on achieving midget status, is one of the barking dogs of the French stock market. In the last year, it has lost 58 per cent of its value even as the CAC index has climbed more than 17 per cent and the French automotive index 13 per cent.
For its sins, Peugeot was recently driven out of the benchmark CAC 40 index of French heavyweight companies. The shares trade at about euros 6.40 giving it a market value of €2.3-billion, a remarkable indictment of Europe’s second largest auto maker, after Volkswagen, measured by volume. In 2007, the year before the financial crisis, they were above €50.
If all this were not embarrassment enough, the French government has published a damning report on the company’s strategy, or lack thereof. Written by a top civil servant, Emmanuel Sartorius, and released Tuesday, it criticized the company for paying scant attention to globalization and concluded that a massive restructuring was “urgently” required.
This is not exactly news to Peugeot management, of course. Peugeot, much to the annoyance of French president François Hollande, who is presiding over a stalled economy and climbing unemployment, is shedding 8,000 workers in France and closing an assembly plant, the country’s first automotive factory closure in 20 years.
How did Peugeot end up in the ditch?
Peugeot, whose parent company, PSA Peugeot Citroen, is about 30 per cent owned by the Peugeot family, jealously guarded its independence and failed to expand much beyond its core European market, which accounts for some 50 per cent of its sale. European sales are fading as some of its biggest traditional markets – France, Italy and Spain – barrel headlong into recession.
European auto makers that went whole-hog into foreign markets have fared much better. Fiat is losing momentum in Italy and would be in serious trouble if it were a Europe-only player. Instead, it getting propped up by its surging Brazilian sales and by a revitalized Chrysler (Fiat is Chrysler’s controlling shareholder and Serigio Marchionne is CEO of both Fiat and Chrysler). For its part, VW is close to its goal of becoming the biggest and most profitable car maker in the world by exploiting a international portfolio of brands, from Lamborghini to Skoda, top engineering and platform sharing.
Peugeot is only now getting into the international game. Early this year, it forged an alliance with General Motors which saw GM take a 7-per-cent stake in the company. Together, the two companies hope to save about $2-billion (U.S.) a year through platform sharing, joint purchasing and other synergies.
But it may be too little too late for Peugeot. The company’s cash burn is horrendous, at about €200-million a month. In the first six months of this year, Peugeot lost €819-million. It plans to break even by 2014, but that may be ambitious, given the deepening recession in its core market.
The government report said that “in the medium to long term, the future of PSA lies in a strategy of an alliance with a big world auto maker.” That alliance may be with GM alone, or it may be with another automotive group. Indeed, another round of restructuring in Europe seems inevitable as capacity continues to outstrip demand. Opel, the European division of GM, has been a hard-luck case for years and seems ripe for a takeover by a healthier manufacturer.
Ignoring globalization was not Peugeot’s only mistake. Another biggie was devoting far too much of its financial resources to dividends and share buybacks instead of investment.
The government report estimated that Peugeot spend almost €6-billion on dividends and share buybacks between 1999 and 2011. It said the €450-million dividend payment in 2011, when the company was clearly in crisis, deprived the car maker of “precious resources.”
Share buybacks are capitalism at its laziest. If the loot had been invested in hot designs, efficient manufacturing and foreign alliances, Peugeot, once the model French industrial corporation, might still carry that status today.