Peugeot maker's profit gains on up-market models

More expensive vehicle range and cost-cutting help PSA rebuff the deepening slump in the global auto industry

PSA Group chief Carlos Tavares. The car maker has bucked a beneral downward trend in the industry. Reuters

Peugeot maker PSA Group’s profit margin widened to a record in the first half of the year as the French car maker cut costs and used the sale of more expensive models as antidotes to the deepening slump in the global auto industry.

The company that also makes Citroen cars reported on Wednesday a first-half recurring operating margin of 8.7 per cent at its automotive division, well above a target of at least a 4.5 per cent over the 2019-2021 period. It also joined a chorus of rivals in confirming vehicle demand is slo wing, predicting declines this year in both Europe and China.

“This is a hugely impressive result,” Evercore analyst Arndt Ellinghorst wrote in a note, adding that PSA is now the benchmark for margins of premium brand manufacturers.

PSA’s improved results stand out amid the gloom that has descended upon the sector as markets shrink. PSA depends heavily on European countries for its sales, which dropped 13 per cent globally to 1.9 million vehicles in the first half. Daimler has issued a string of profit warnings and car part-makers Continental and Faurecia have significantly lowered their expectations for global vehicle production.

While the company’s earnings beat analyst expectations, its margin got a boost by excluding restructuring charges from operating profit, Bloomberg Intelligence analysts said. Those reflect cost-cutting initiatives at recently-acquired Opel and Vauxhall, but also Peugeot, Citroen and DS.

Chief executive Carlos Tavares told analysts he sees restructuring charges rising across European auto makers due to the ened to make electric and hybrid cars to comply with European regulations on car emissions. As the share of electric vehicles in PSA’s sales rise, the company will seek to offset the lower profitability of electric cars by accelerating cost cuts, he said.

Electric versions of half the line-up will be available by 2021, and across PSA’s entire product range four years later, according to a spokesman. In 2018, sales of all-electric and hybrid vehicles accounted for less than 1 per cent of PSA’s registered sales. “We are ready for electrification and to embrace the next technological challenges,” Mr Tavares said.

Since arriving in 2014, Mr Tavares has turned around a struggling PSA by focusing relentlessly on cutting costs and adding scale. He reiterated Wednesday that the company is open to potential tie ups. PSA held talks with Fiat Chrysler Automobiles earlier this year to build a new “super platform”, yet the discussions failed to result in a deal. The Italian-American company then nearly slipped into the arms of French rival Renault, before that combination finally collapsed.