Automotive News Europe - August 2019 - 6

AUTOMOTIVE NEWS EUROPE

COVER STORY

PSA CEO Carlos Tavares has referenced natural selection to describe the industry's seismic changes. "We are Darwinian. We know that the survival of our company is based on our ability to adapt," he said.

Magic formula
How Tavares has turned PSA into a profit-making machine
PETER SIGAL

psigal@autonews.com

challenging year in 2018 left many
of Europe's automakers struggling to
put a brave face on falling margins amid
worries about the high cost of complying
with tougher emissions rules while also
investing in electric cars and autonomous driving technology. This was not
the case at PSA Group, where CEO Carlos Tavares announced record sales and
profits, including an operating margin of
8.4 percent for the Peugeot, Citroen and
DS brands -- and a 4.7 percent margin
for Opel/Vauxhall just 18 months after
buying General Motors' money-losing
European operations.
Analysts were quick to give Tavares
credit for the results. "The transformation of PSA under Tavares has been
extraordinary," Max Warburton of Bernstein wrote in a note to investors in June.
Tavares successfully applied his proven
approach on cost, capital discipline, distribution and pricing to Opel/Vauxhall,
Warburton wrote.

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Arndt Ellinghorst of Evercore ISI said Tavares and his team are on track to do
what few would have thought possible in
turning around Opel/Vauxhall. "PSA, under CEO Tavares' leadership, shows how
to get the job done," Ellinghorst said in
a note to investors. The praise for Tavares continued last month after PSA said
that recurring operating income rose
11 percent to 3.34 billion euros, lifting
its operating margin to a new record of
8.7 percent in the first half. Ellinghorst
called it "a hugely impressive result."
That being said, Tavares' record is not
perfect. Sales in the Chinese market
have fallen to about 200,000 this year
from nearly 750,000 in 2014; sales in
other global regions such as the Middle
East and Latin America have slipped recently; and the upscale DS brand has not
yet gained traction.
The Tavares formula, if there is one, includes a focus on improving pricing even
at the cost of volume; keeping a tight
model lineup with strong branding; and
efficient allocation of capital, analysts

said. But there are other factors such as:
Tavares' qualities as a leader; a willingness to explore lesser-known revenue
streams such as used cars; and an agile
production network.

Luck or good timing?
Some of the success can also be attributed to luck or good timing, analysts said.
Tavares arrived at a troubled PSA in early
2014 after stepping down as No. 2 at
Renault under then-CEO Carlos Ghosn.
With PSA bleeding cash after the 2008
recession, earlier management made
some hard decisions. PSA was restructured to give the French government and
China's Dongfeng Motors each a 14 percent stake. The move injected more than
1.6 billion euros into PSA while reducing
the Peugeot family's stake to 14 percent
from 25 percent. Assets were written
down, lowering PSA's cost basis.
A factory at Aulnay, near Paris, had
just been closed, as part of a plan to
trim more than 10,000 jobs in France
by 2015. A development deal with GM,

AUGUST 2019

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Automotive News Europe - August 2019

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