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PSA Group Plots Comeback in North America With Peugeot Cars

Feb. 26, 2019
Move is expected to lessen dependence on struggling European market.

With the auto industry in retreat and U.S. President Donald Trump threatening new tariffs on European cars, France’s PSA Group is stepping into the fray with a plan to re-enter North America with the Peugeot brand.

A quarter century after the manufacturer quit selling cars in the U.S., the world’s second-biggest market, Chief Executive Officer Carlos Tavares said Tuesday PSA will start shipping vehicles from Europe or China in 2026.

PSA has been working toward the announcement, adding a car-sharing service in Washington, D.C. in 2018. The French manufacturer’s move will help lessen dependence on Europe, where it delivered 80% of its cars last year, including the compact Peugeot 308 and the 3008 sport utility vehicle. Still, the risks are great because the compact-car market that’s one of Peugeot’s strength is small in the U.S.

The decision marks a rare show of confidence in an automaking industry whose fortunes turned sour last year after trade wars and slowing economic growth added to the hefty cash demands of keeping up with technological changes. Despite this, Tavares -- a onetime protege of fallen Renault SA titan Carlos Ghosn -- managed to return the Opel brand to profitability after acquiring it from General Motors Co. in 2017. PSA’s Peugeot, Citroen and DS premium brands too have topped margin goals.

Entering the U.S. -- where Volkswagen AG’s namesake mass-market brand has consistently struggled -- will see PSA exposed to an “exceptionally competitive” market for compact vehicles, said Evercore ISI analyst Arndt Ellinghorst. “I would recommend PSA to tackle this with a partner rather than trying to establish a hardly known, new brand in the U.S.,” Ellinghorst said.

Investor skepticism about the plan and a cautious outlook for the year sent PSA shares tumbling as much as 5.2% to 21.57 euros, the most in over three months, after reporting annual earnings. The shares were at 22.00 euros at 11:07 a.m. in local trading. The company’s new expansion phase entering additional markets and electric models “looks much tougher, with higher risks” and will potentially require more spending, Morgan Stanley said in a note.

PSA, which is also expanding in India and Russia, already faces a struggle in China, where it lost 294 million euros (US$334 million) last year and sales with partner Dongfeng Motor Group Co. slumped by more than one-third. The company is making changes to its dealer network and introducing more popular sport utility vehicles, it said.

Most Recognition

PSA has already started engineering its future models to meet U.S. safety and emissions rules. The company chose its Peugeot brand for the comeback, after last year saying it had most recognition among Americans.

“We are taking a pragmatic approach to entering the North American market,” said Larry Dominique, president of PSA’s North America division. “From the larger ‘mobility services’ revolution currently taking place, to the more fundamental models of retail, service, financing and logistics -- we’ll continue to build our plan on careful, scalable solutions.”

The decision to move back into North America comes as PSA is faced with slowing demand in Europe, where deliveries dropped for a fifth straight month in January. Uncertainty over a no-deal exit of the U.K. from the European Union and an economic slowdown in Italy and Germany are weighing on car sales.

For the group, PSA targets an average automotive return on sales of 4.5% during 2019 to 2021. This compares with an average margin of 7.2% during 2016 to 2018, excluding the Opel acquisition. The new goal was an “all-weather” guidance that takes into account a soft or hard Brexit, Chief Financial Officer Philippe De Rovira told reporters.

By Ania Nussbaum

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