PSA Peugeot Citroen Is Facing Troubled Times; Ryton Was a Victim of the Eastward Migration of Europe's Automotive Industry, According to an Industry Expert. Manufacturing Editor John Revill Writes

Article excerpt

Byline: John Revill

With three profits warnings in the last 12 months, PSA Peugeot Citroen is facing troubled times.

The company, Europe's second largest car maker after Volkswagen Group, had seen its profits decline and its margins shrink since 2004.

The market for its vehicles is stagnant, and even falling' the company's cars - the 307, 407, and Citroen C5, although critical successes are not being ordered by fleet buyers.

Meanwhile, non business customers are heading for more speciality vehicles which had higher margins, but unfortunately are not being produced by Peugeot.

The company has also wrestled with excess capacity as it failed to expand quite as much as it anticipated into newer markers around the world.

Worst still, the company's excess capacity was located in high cost countries like France, Spain, Portugal and Britain.

In September, the company revealed plans to shed 10,000 jobs over the next year, including the 2,300 at Ryton, as well as reduce capital spending by pounds 336 million to pounds 1.68 billion per year.

The move was part of Peugeot's response to profits which fell from pounds 759 million from pounds 272 million in the first six months of this year - a challenge for its new chief executive Christian Streiff, who takes over on February 6.

Professor Peter Cooke, KPMG professor of automotive industry management at Nottingham Business School said: "Peugeot needs to reduce costs and expand the product line up by building strong alliances yet still protect its unique French brand.

"Jean Martin Folz has already started this strategy of increasing expansion into developing markets.

"But Streiff also must have a working relationship with the Peugeot family, which holds 45 per cent of the company's shares."

Thierry Peugeot, the head of the controlling family, has charged Streiff with two objectives: to restore growth and to avoid alliances which could put the Peugeot family's control at risk.

The company has already started to form alliances in a limited way, for example through the factory it shares with Toyota at Kolin in the Czech Republic.

This joint facility, which also produces the Toyota Aygo small car and the Peugeot 206, has hastened the demise of Ryton.

In this arrangement Toyota would lead on the quality, manufacture and product development of the vehicles, while Peugeot focuses on components acquisition and the supply chain.

Eastern Europe

The move is part of the general migration of automotive production to central and eastern Europe which is only likely to accelerate in the coming years as those markets expand, said Prof Cooke.

That Central European automotive manufacturing belt could be compared to the Midlands in the UK, the centre is not much more than a couple of hundred miles across where many of the states come close together, Czech Republic, Slovakia, Hungary and Poland.

In 2005 car and commercial production was about 4.1 million and by 2009 that is expected to rise to 5.7 million and 6.3 million by 2013.

Prof Cooke said: "This area has received a fair amount of EU money to improve the communications - the roads and rail links, while many of the roads don't have very much traffic on them."

Meanwhile many component suppliers - tier ones which feed directly into Peugeot and the other manufacturers as well as the tiers twos which supply them - have shifted to central and eastern Europe.

"This new automotive assembly industry is bang in the middle of central and eastern Europe, where those new plants are focusing on smaller cars to satisfy growing local market demand.

"The UK is a medium car market."

Prof Cooke said in such conditions Ryton was fortunate to have continued production as long as it has.

"It is a credit to the workforce and the unions that they have been able to keep the plant as long as they did especially when you consider that up to 75 per cent of the components came from mainland Europe

"The logistics cost of bringing all these components would have been seen as dead money. …