Carmaking: Track Mentality

PSA Group’s boss has revived its fortunes. He isn’t done

　　Carlos Tavares likes to move quickly. The boss of PSA, maker of Peugeots and Citroëns, has a passion for motor racing and speed pervades his day-to-day activities, too. The intense Portuguese arrives abruptly for meetings and departs so swiftly that it takes a few seconds to realise that he has gone. His reputation as the most talented boss now running a car company is also built on speed – his rapid and remarkable turnaround of two struggling firms, first PSA itself and then Opel, acquired from General Motors (GM) in 2017. Steering his mass-market firm towards the future of carmaking will not be easy.

　　The permanent frown clouding Mr Tavares’s brow is a testament to the tough jobs he has pulled off. First, after taking the wheel of PSA in 2014 after years of heavy losses, he rescued it from bankruptcy. To near-universal surprise, he restored the firm to the black in a year. Revenues and profits have since grown handsomely; profit margins now rival those of German premium carmakers.

　　As Maxime Picat, PSA’s director of operation in Europe, drily observes, seeking profits first and volumes afterwards has “not always been the case” in an industry that has prioritised sales and market share. PSA sought to sell fewer cars at a bigger mark-up. It axed niche models that made little money and slashed costs by limiting the bewildering array of combinations of engines, body styles and the like.

　　When PSA was criticised for lacking the heft to make big investments in electric vehicles and self-driving cars, Mr Tavares paid GM ?.3bn ($1.4bn) for its struggling European arm. This added around 1m vehicles a year to the 2.8m the rest of the group built in 2018, making it Europe’s second-biggest carmaker behind Volkswagen. He applied his tactics again, this time to a company which had suffered two decades of losses totalling around $20bn under American ownership. In 2018 Opel reported an operating profit of over ?60m.

　　The resurrection of two struggling car giants has propelled PSA’s share price by 14% over the past year. Steering the combined firm through the next series of bends will take a different set of skills, however. Car sales in Europe, where PSA generates 80% of revenues, are less brisk than in the past. Markets such as India and Russia, which Mr Tavares is eyeing, are trickier to negotiate. PSA has struggled in China, where carmakers have done well in recent years. Making humdrum Opels (sold as Vauxhalls in Britain) desirable will require heavy spending. Placid unions, which recognised PSA’s difficulties, may become less so as its health improves.

　　A plan to return to America has also met with scepticism. PSA’s brands are largely forgotten there – the last one, Peugeot, departed 28 years ago. Rather than spending heavily on marketing, building a factory and losing money “like hell”, Mr Picat says, PSA will start with car-sharing services to reintroduce the marques gradually as part of a ten-year project that will “make money at every step”. This seems to be one place where Mr Tavares is content to go slowly.

　　Further down the road, he worries about the added costs of electrification to meet EU emissions targets. The American car-sharing venture will offer some experience in mobility services, but PSA lags behind many rivals in autonomous vehicles. All this will require heavy spending.

　　Greater scale would help. Mr Tavares is on the lookout for deals. A tie-up with GM or Fiat Chrysler Automobiles (whose chairman, John Elkann, sits on the board of The Economist’s parent company) has been rumoured. So has a takeover of struggling Jaguar Land Rover from its Indian owners. Some industry-watchers think consolidation is imminent – and virtually all believe it is necessary to share the costs of developing electric vehicles, self-driving cars and mobility services. Since the death last year of Sergio Marchionne, Fiat Chrysler’s legendary boss, and the legal travails in Japan of Carlos Ghosn, ejected from his leadership roles in the Renault-Nissan-Mitsubishi alliance, many observers see Mr Tavares as the only car boss with the skill to cut big and difficult deals.

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