Peugeot Citroen Sets Profit Goal in Recovery Drive

PSA Peugeot Citroen, Europe's second-biggest car maker, on Tuesday set a 5.5% to 6% operating profit margin target by 2010 as part of a recovery plan unveiled by its chief executive.

The French group, which competes with Europe's top car maker Volkswagen AG, said it wanted to sell more than 4 million cars a year by the end of the decade, up from 3.36 million in 2006.

It is also aiming for its margin to rise to 6-7% after 2010.

"We are engineering Peugeot's powerful comeback and accelerating Citroen's revival," Chief Executive Christian Streiff said.

Streiff, 53, became PSA chief executive in February 2006, succeeding Jean-Martin Folz, after a tumultous 100 days at the head of plane maker Airbus and a 26-year career at building materials group Saint-Gobain.

PSA's margin goal is roughly in line with analysts' expectations and compares with French rival Renault's target of 6% by 2009.

"In 2015, PSA Peugeot Citroen intends to be solidly positioned in Europe, steadily growing and profitable, with extensive operations in other global markets and ranking among the leaders in each of its businesses," it said in a statement.

PSA has been plagued by eroding profit margins due to stagnant sales in its main west European market, high raw material prices and fierce competition in an industry suffering from structural overcapacity and a lack of pricing power in the face of large steel firms and integrated parts suppliers.

Aiming High

PSA also set goals for its parts supplier Faurecia, in which it has a controlling stake, its Gefco logistics group, and its car sales financing bank, Banque PSA.

"Faurecia aims to be among the worldwide leaders in each of its activities, Gefco expects to become the European leader in automotive logistics, and Banque PSA Finance is determined to remain the benchmark in profitability," it added.

PSA was aiming for a strong improvement in product and service quality, with the Peugeot and Citroen brands ranking among the European top five.

It was also aiming for a European product offensive signaling a comeback for Peugeot and an acceleration for Citroen, with 29 product launches in Europe between 2007 and 2010, totaling 53 new car models.

It plans a cost-cutting program to reduce warranty costs by half and increase purchasing productivity from 4% to 6% a year, reduce overheads and fixed costs by 30%, shorten development cycles by 30% and reduce supply-chain costs by 10%.

"After a four-year decline in margins, the higher volumes and lower costs generated by CAP 2010 (the strategy plan) will drive a sustainable recovery in the group operating margin, which is expected to reach 5.5% to 6% in 2010, then improve to achieve 6% to 7% over the 2010- 2015 period," it said.

Many financial analysts attended a briefing at PSA.

Most Competitive Car Maker in Europe

"This strategic plan will make PSA Peugeot Citroen the most competitive carmaker in Europe, steadily growing and profitable, with significant international development, open to opportunities of strengthening and of creating shareholder value," it added.

PSA said it wanted to increase capacity utilization by 20 points. It also aims to strengthen its position in environmentally-friendly cars.

In July, the group reversed a four-year decline in its European market share. Its first-half market share rose to 14.2% from 14% a year earlier. The turnaround follows a steady drop from 15.8 percent in the first half of 2003.

PSA Peugeot Citroen already has announced plans to cut 4,800 jobs through voluntary redundancy in France in 2007, out of around 122,000, after a hiring freeze in 2006 and the closure of its Ryton plant in England.