Moody's Investors Service reduced the credit rating of PSA/Peugeot-Citroen one level to four steps below investment grade. Moody’s said that a narrowing of Europe's auto market poses a threat to the company’s plans for its cash flow to be restored. Falk Frey, Moody's lead analyst for the automaker, said that the long-term rating on PSA's debt was lowered to B1 from Ba3.
He said that it has a stable outlook. In a statement, Frey said that unless the market demand in Western European recovers strongly in 2014 from the forecasted 2013 levels, PSA may have to implement more cost-saving measures beyond the restructuring plan that was unveiled. In February, Fitch Ratings lowered PSA to four levels below investment grade. Meanwhile, Standard & Poor's Ratings Services rated it at three levels lower.
PSA, the No. 2 biggest automaker after Volkswagen Group in Europe, faces the tough challenge of cutting losses as the region's auto market drops for six years in a row. This year, its stock has increased by 7.2%, givin the French automaker a value of 2.1 billion euros ($2.74 billion). In 2012, the company posted an operating loss of 576 million euros.
On Feb. 13, CEO Philippe Varin made a pledge to place PSA on a break-even level by end of 2014 by reducing expenses and taking on a new strategy that includes shifting its Peugeot brand upscale. PSA expected a 3-5% decline in Europe's auto market this year; however, Varin now predicts that the market will contract to around 5% to the lower end of the forecast. German daily Frankfurter Allgemeine Zeitung interviewed Varin who said that PSA expects the market in Europe to get worse and that he doesn’t expect it to recover this year.