September 17, 2015, 18:37 / Auto

PSA Peugeot Citroen is open to forming an alliance with competitors

The automaker can even cooperate with technology companies from the United States, said its CEO Andy Sherman PSA Peugeot Citroen's results are improving, and opportunities are opening up for it to find new partners in order to benefit from this in the long term / A. Makhonin / Vedomosti

French PSA Peugeot Citroen is ready for a possible alliance with other automakers and even partnerships with companies from Silicon Valley. Its CEO Carlos Tavares spoke about this in an interview with the Financial Times at the Frankfurt Motor Show. Under his leadership, the company's results are improving, which opens up opportunities for it to find new partners to benefit in the long term.

Just a year and a half ago, Peugeot looked doomed - it was suffering losses and agreed to carry out an additional issue of shares worth 3 billion euros, part of which was acquired by the Chinese Dongfeng and the French government. But already in July, evidence emerged of the effectiveness of its Back in the Race plan: in the first half of 2015, it received a net profit for the first half of the year for the first time since 2011, and its operating margin was 5%. This is a relatively high figure for automakers operating in the mass market. “If the results reported in July for the first half of 2015 had been the same for the full year, we would have declared our Back in the Race plan complete,” Tavares told the FT.

PSA Peugeot Citroen unveils plan to return to profitability

The company intends to ensure that cash flow ceases to be negative no later than 2016

The company will wait for its annual report in February 2016 to see if it has maintained a strong balance sheet, positive cash flow and profitability in its auto division, Tavares said. If these goals are achieved, Peugeot will consider possible partnerships with other automakers. “From now on, we are again the masters of our destiny, and therefore all options are available,” he said. At the same time, Tavares emphasized that when making a decision, the company’s management will not be based on a specific scenario, but will act in the interests of shareholders and employees.

In 2014, the FT wrote about talks between Peugeot and Fiat Chrysler Automobiles (FCA) about a possible merger, citing people familiar with the situations. The deal could create the world's fifth-largest automaker. But Peugeot denied the rumors at the time, and Tavares has now refused to say whether he had discussed such an idea recently.

However, Peugeot already has a joint venture with FCA to produce vans, and also collaborates with General Motors (GM), Ford and Toyota.

Fiat Chrysler CEO Sergio Marchionne, in turn, made it clear that he prefers a merger with GM, another concern from Detroit. Marchionne made an informal merger proposal to GM in March, but GM CEO Mary Barra rejected it. As a result, some analysts believe that Peugeot could be Fiat Chrysler's next best option due to the potential global scale of the combined company. “We are convinced that this merger is the most sensible option for both [automakers],” Exane BNP Paribas analyst Edoardo Spina wrote in August.

Tavares is well aware of the benefits of consolidation, which allows automakers to buy components more profitably from suppliers and reduce vehicle development costs by spreading them across more models. Thus, in 2014, his company sold only 2.9 million cars, which is a relatively small number. But Tavares wants to continue to prioritize cutting fixed costs, which helped improve results in the first half. True, Peugeot was also helped by the recovery of the car market in Western Europe (sales grew by 8.6% in the first eight months of 2015) and the depreciation of the euro.

Previously on the topic: “You have to be an idiot to buy a plant in France”

But you cannot rely on such favorable conditions forever. Automaker costs may rise due to stricter requirements for carbon dioxide emissions and the development of new technologies, as well as changing preferences of car owners and trends in the global car market. This could lead to dire consequences for the industry, Tavares said.

Potentially, the biggest threat to the sector could be the emergence of new competitors from Silicon Valley, including Apple and Google, which is working on a self-driving car project. But Tavares hopes smaller, nimble automakers like Peugeot can capitalize on this. “If [tech companies] want to do something related to mobility, they will naturally come to the conclusion that it is better to collaborate with someone,” he said. “So we are open to partnering with one of these companies.”

According to Tavares, Peugeot can also produce cars for technology companies. But he stressed that such an agreement is possible only if the French company maintains contact with the end consumer. “Nobody [wants] to become just a packaging manufacturer,” he said. “Perhaps I’m naive, but I don’t understand why a mutually beneficial solution cannot be found even in such a matter.”

Translated by Alexey Nevelsky