PSA suffers from loss of debt and expects China market

On February 13, 2013, the PSA Peugeot Citroën Group (hereinafter referred to as the PSA Group) released its financial report for the year 2012, bringing with it the most severe set of financial data in its history: The PSA Group's annual loss amount reached a remarkable 5,010 million euros.

"If the European economy does not improve again this year, the possibility of PSA Group achieving its previous goal is almost zero." People familiar with PSA said to the Daily Economic News reporter.

In 2012, only the Chinese market was profitable in the PSA Group's global business. In its most reliant European market, PSA Group's sales fell by 13%, which was higher than the average decline of 7.8% in the European automotive market.

In March, the French government is likely to help with the loss of the PSA Group. However, in the game between the Peugeot family of PSA major shareholders and the French government, the status of PSA Group President Philip Varan is precarious. Varian's predecessor Christian Streff fell to the threshold of the global financial crisis in 2008. This time, Varan faced a continuously fermented European debt crisis.

The continued downturn in the European market has also caused the PSA Group to begin to change. Varan has repeatedly expressed the importance of the Chinese market for PSA Group. After undergoing a series of changes, Dongfeng Peugeot and Dongfeng Citroen (Weibo) began to make efforts in 2013. Dongfeng Citroen is also proposing a growth rate of 17.5% under the condition that the market growth rate is expected to be 8%.

However, PSA Group's strategic layout for the Chinese market is not robust, and the introduction of established Changan PSA and DS brands has not yet seen earnings expectations for PSA groups in desperate need of profit support.

According to the reporter of "Daily Economic News", since the DS products were officially listed on June 28, 2012, the terminal sales volume was only two or three hundred, and the wholesale volume was only about 500 vehicles. The related sources frankly stated that if the situation of Changan PSA cannot be quickly improved, it may become an “unacceptable burden” for the PSA Group.

PSA hit the lowest point in history

The data shows that in 2012, PSA Peugeot Citroen Group's operating income was 55.446 billion euros, which was 5.2% lower than 2011's 58.509 billion euros. Of which, the automobile business was 38.299 billion euros, which was a year-on-year decline of 10.3% on 2011 basis of 42.71 billion euros.

It is reported that the net loss of financial reports was mainly due to the depreciation of assets in the automobile sector. The data shows that the impairment adjustment of the auto sector resulted in a depreciation of EUR 3.009 billion. In addition, the adjustment of deferred tax net value resulted in a depreciation of EUR 879 million.

In response, an automobile analyst said in an interview with the reporter of the “Daily Economic News” that in the course of business operations, some bad debts, bad debts, and bad assets will appear. After a while, it needs to be cleared up and re-affirmed. He said: "According to the general mode of operation of enterprises, the general selection of bad years has been divested so that good year profits can grow faster."

However, he also stressed that there are many considerations for companies to make accounting adjustments, such as the achievement of annual performance, future profit growth, whether the performance needs to be smoothed, bonuses, and so on.

In response, Varan stated in the 2012 financial report: "Today, the foundation for our rebound has been laid."

However, in 2013, the status of the PSA Group was not as optimistic as Varan said. "In 2013, it could be said that the PSA Group was a matter of life and death. But now, it seems that there has been no good development." The above-mentioned personage told the "Daily Economic News" reporter.

In 2012, PSA Group, which was under severe financial pressure, had to sell a number of its main operations. Since April last year, PSA Group has begun to sell its important assets in order to reduce the loss. In addition, more than 8,000 people are involved in layoffs and plans to close the factory in Onai, France.

Life and death exam in 2013

At present, the plight of the PSA Group may only look to the French government for help. Due to poor performance, the departure of its president, Valan, has once again become a focus of attention. Prior to this, Peugeot, the largest shareholder of PSA, wanted to replace CEO Philip Varan and his management team.

According to the data, in 2012, the total sales volume of PSA Group's global vehicles was 2.82 million, a year-on-year decrease of 8.8%. The European automotive market crisis is the main reason for the decline in sales of the Group. In the South European car market where PSA Group has a traditional advantage, the impact of this crisis is particularly serious, with the French automobile market falling by 13.3%, the Spanish automobile market by 14.9%, and the Italian automobile market by 20.9%.

VP of the PSA Group, Valan, is also pursuing the final reform of the PSA. He has been trying to turn PSA, the “European local company,” into a global “multinational company”.

PSA Group stated that sales of PSA Peugeot Citroën in the non-European market increased by 3.2% compared to 2011 to 1.062 million units in 2012. Outside Europe, the market share of PSA Peugeot Citroën Group rose from 33% in 2011 to 38%.

"Peugeot Citroen plans to further increase this ratio to more than 50% by 2015." At the time of the PSA Group's release of its financial report, it also said that the pace of transfer from the European market has accelerated.

In this regard, Valan said that in the next investment, while restoring the profitability of the European market, will continue to obtain investment income from emerging markets.

“PSA Group is more defined as a European company than a multinational company.” According to the analysis, this is a problem that PSA Group must expedite in the globalization of the automotive industry. At the same time, strategic choices in emerging markets are likely to become the next major test for the PSA Group.

China saves PSA

When the PSA Group's 2012 annual performance was bleak, the Chinese market became the only bright spot. According to the data, PSA Group's sales in China increased by 9.2% year-on-year to 442,000 units in 2011, which represented a 3.5% market share.

Not long ago, Hua Xiaoyan, director of public affairs and corporate communications at PSA Asia Operations, publicly stated that this achievement has made the PSA Group feel relieved. She believes that in the past few years of accumulation, 2013 will be expected to become the "explosive year" of PSA's two joint ventures in China.

However, after constant adjustment of sales targets, whether it is Shenlong or Changan PSA investment, there is a significant reduction. According to the "Daily Economic News" reporter, it was learned that PSA had already lowered its original sales target of 2015 for mid-term sales in China.

As the market share of Dongfeng Peugeot and Dongfeng Citroen 5% has been difficult to break through, the important task of achieving the above strategic goals began to pin down on the Changan PSA.

“The DS model has been regarded by the PSA Group as the key to PSA's breakthrough in high-end and market share,” a market analyst told reporters.

Zhong Shi, an analyst in the automotive industry, said, “Because the DS brand has just been introduced, it needs continuous investment to increase brand awareness and influence. Before the domestic production scale, Chang’an PSA is difficult to profit. At this time, PSA Group is deeply involved in the financial crisis. It can be imagined."

According to PSA Group's expectations, under the current auto market conditions, the reorganization of the Group’s production and operations in France and the redistribution of labor will help the Group to restore its operating cash flow to the balance of payments by the end of 2014.

According to the analysis, the status of the European market has a significant impact on PSA Group's investment in China. In other words, when PSA got out of debt in this crisis, it largely determined its performance in the Chinese market.

"As the Chinese market matures and growth slows down, trying to use the Chinese market to rescue a precarious brand has already passed," said a market analyst who told the Daily Economic News.