PSA/Peugeot-Citroen will boost European production by 10%

Article by Andrew Christian, on April 27, 2015

Just a year after PSA/Peugeot-Citroen launched a major turnaround plan, it has announced a plan to raise production in Europe by 10% as the market recovers and the demand for its models become stronger. The restyled Peugeot 208 subcompact and newly launched Citroen C4 Cactus crossover are two of the models that have been in demand.

From May to August, PSA will increase its output by 60,000 units. There has been an increase in European registrations that may make the recovery targets cited by CEO Carlos Tavares appear too conservative in comparison. In March 2015, the automaker’s sales increased by 8.9% while the total market experienced an 11% gain.

The mid-market brands like Peugeot and Citroen seem to have gained better footing, doing better than the plain budget cars that did well even during the downturn. In a statement, PSA announced that all three of its brands (Peugeot, Citroen and DS) will increase their volumes. Over this period, the production of the C4 Cactus in Madrid will go up by 9,000 units more.

Other models that will also increase their output are the Peugeot 208, 2008 and 308, as well as the 308 SW version. The production in Poissy, France, of the DS 3 cars will also rise. Sales of the highly profitable delivery vans are also on the rise, prompting the increase in output of plants such as Sevelnord in northern France, where PSA has formed a night shift.

According to PSA manufacturing chief Denis Martin, the upturn hasn’t pushed the company to delay or stop plans to cut fixed costs and find ways to boost productivity. He said that the company won’t lose its head just because “Europe is back in volume growth.” He explained that volume doesn’t drive the results; rather, what affects it is the “structural action” that the company has been taking.

Due to losses for many years, a 3 billion euro ($3.2 billion) bailout was planned last year that led to the French government and China's Dongfeng acquiring 14% stakes in the automaker. PSA made a pledge under Tavares to go back to an operating margin of 2% by 2018. Analysts have applauded Tavares’ proposal while some in the industry criticized him.

The first group later claimed partial vindication when PSA was able to meet its cash-flow target four years early. Tavares’ "Back in the Race" plan includes strategies to reduce labor costs and inventory at PSA while dropping some models to concentrate on the more successful vehicles.

The increase in demand boosts the possibility that Tavares will have to upgrade his profitability goals shortly. When interviewed last Monday, Martin said that the company is working under the concept of a flat European market in 2015.

He added that if volumes are high, it may mean that it will be able to achieve its Back in the Race targets quicker than was forecasted.

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