PSA insists on higher quality from suppliers

TALK FROM THE TOP
Folz

Jean-Martin Folz, CEO of PSA/Peugeot-Citroen SA, wants European suppliers to match the quality standards of their Japanese counterparts. PSA is learning more about Japanese suppliers in its role as purchasing leader in a new small-car venture with Toyota Motor Corp. In particular, the 54-year-old Folz urged makers of electronic components to accommodate the needs of the car industry.

Automotive News Europe Staff Reporter Sylviane de Saint-Seine interviewed Folz on Nov. 5 in Paris.

Given the economic situation in your two main markets, Europe and South America, are you revising your production and financial objectives?

With our first-half results, our third-quarter sales and our registration figures for October in France and in Europe, there is no reason to revise our 2001 objectives - that is 3 million vehicles, 4.8 percent operating margin and operating income of e2.6 billion (or about $2.32 billion at current exchange rates). But that's as I speak. The year is not over.

What about your 2004 objectives set last February - 3.5 million vehicles, 25 new models, annual investment of e3 billion (about $2.64 billion) and 6 percent operating margin?

We stick by them.

Assuming the going gets tougher in the car industry, could we see a revival of government-funded car purchase incentives similar to those we saw in the mid-1990s?

I hope not. I am against state incentives for new cars. They just distort the market. But what would be very useful is a cash incentive to scrap old cars. They pollute much more than new cars because they are often poorly maintained and badly tuned and because anti-pollution technology has made so much progress since they were built. One could think of a subsidy targeted toward low-income owners of old cars, and its beneficiaries could do whatever they like with the money. They would not have to buy a new car, unlike the incentives we had a few years ago.

Any prospect of such an incentive?

Not at present, although I have been pushing this idea to anyone who would listen. Still, it may be gaining ground. I heard that (VW's supervisory board chief Ferdinand) Piech mentioned something along those lines not long ago.

What is the situation in South America? Are you cutting production?

We did cut production in our Palomar plant in Argentina in early spring. We went from two shifts to one. Overall sales in Brazil, which rose in the first half, have been falling in the second half. But we count on producing between 20,000 and 23,000 cars there this year, as planned. The Picasso and 206 are off to a good start. For September, Peugeot and Citroen had a 5 percent market share between them. It is the highest ever.

How do you judge the quality of components coming from suppliers?

We have been insisting on quality being considered from the design stage. Co-development of products has been helping improve quality. But European car suppliers still have room for progress compared with their Japanese counterparts.

Is the growing use of modules, whereby Tier 1 suppliers assemble components they haven't built, detrimental to quality?

On the contrary, this means suppliers will have to tighten quality control. They will share the same preoccupations as us in managing the quality of their own suppliers. The

real challenge is to focus on quality from a very early start in the development process.

Is there a specific problem with electronic components?

Yes. I think electronic component makers haven't quite realized. Yet we've become a key market for them. Electric and electronic systems represent roughly 20 percent of the cost price of a car, and that proportion may reach 40 percent in the future. They don't seem to have taken that in, and it shows in their prices, which are too high. Moreover, they don't seem to have realized that a car's life span is greater than, say, a mobile phone's.

Do you mean their components aren't durable enough?

I mean they change them too often. They should manufacture each component for a longer period. Sometimes we have to rethink the electronic architecture of a car because the original component isn't available anymore.

After all, the car industry is proving a more stable customer than many others. The fluctuations aren't as wild as in other industries using electronics. We're a steady source of cash flow. Electronics manufacturers ought to realize this and be more prepared to accommodate our needs.

Is it necessary to own as much as 71.6 percent of Faurecia? Is it the best use of your resources?

One thing is certain: PSA will retain 50 percent of Faurecia for as long as I can see. It's a good investment, with good growth prospects. Our stake in Faurecia exceeds 70 percent because the company needed our help to acquire Sommer Allibert. One can imagine that this stake will go down following, for instance, an acquisition that would be paid in shares by Faurecia. But there's nothing on the agenda. The basic fact is we have more than 70 percent of Faurecia, and that's not bothering us.

Is it paradoxical to hang on to your suppliers when so many carmakers do just the opposite and spin them off? Can't this cause conflicts of interest for Faurecia?

No. The real measure of independence is the customer list. In this respect, Faurecia is far more independent than many of those suppliers that have been spun off, such as Delphi or Visteon. Only 25 percent of its sales are with us.

Isn't there a sentimental element here? After all, Pierre Peugeot, now head of PSA's supervisory board, nurtured Ecia (which was merged with Bertrand Faure to create Faur-ecia in 1998) for many years.

I don't see sentiments playing a crucial part in business life. PSA's strategy has been to build what was Ecia into a large supplier group.

Will you offer gasoline direct-injection engines throughout your entire gasoline product lineup as Volkswagen says it will do?

No, we haven't made that decision. Direct injection does make perfect sense for diesel. But for gas, there are several techniques that can be used to make it more efficient - for instance, electromagnetic valves. Aside from Volkswagen, no one has said it wants to generalize direct injection.

Would you consider a partnership in that field?

No. In principle, we don't enter partnerships in research - only in development and manufacturing.

Are there any buyers for PSA's diesel particle-filter technology?

We pioneered it, and now everyone is busy developing its own. In one year or so, nearly everyone will have one available. They will be second-generation filters, even better performing than what we have now. That's the rule of the game. It is rare for a profitable technology to remain proprietary for a long time. From an industrywide perspective, I think there is no longer scope for a carmaker to come up with a radically new technology and enjoy a crucial and lasting advantage on its competitors. I don't think we'll see key technological leaps of the kind that Citroen enjoyed with the front-wheel drive, for instance.

Regarding the small car you're developing with Toyota, is it true that it will sell for e7,500 (about $6,608)?

I can only repeat it will sell for less than our respective entry-level cars, which are around e8,000 (about $7,049). I don't think anyone can say three years in advance what the price for this car will be since it will be launched in 2005. As for its cost, I would not reveal it even under torture.

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