BRUCE GAIN

PSA shareholders may be unhappy, but Varin will likely stay

Bruce Gain is an Automotive News Europe correspondent in France.Bruce Gain is an Automotive News Europe correspondent in France.
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After a French newspaper reported this week that the Peugeot family was unhappy with the way CEO Philippe Varin was running PSA/Peugeot-Citroen, the carmaker's supervisory board was quick to rally to his defense, issuing a statement on Wednesday that whole heartedly supported him and the strategy he is pursuing.

Despite this vote of confidence, the automaker's shareholders have much to be unhappy about.

The Peugeot family, the single largest shareholder, which controls 25.2 percent of the company's capital and 37.9 percent of its voting rights, has seen the value of its shares plummet by 50 percent since last year.

Volume sales at France's biggest carmaker have fallen 14.9 percent in EU and EFTA countries during the first five months, according to data from industry association ACEA, as PSA continues to suffer the effects of overcapacity and a protracted economic slump in European markets.

Production too is likely to take a hit this year, with the French newspaper Les Echos reporting PSA will miss production targets by 440,000 in 2012.

On the other hand, Varin has been tasked with bailing out the automaker after its net debt ballooned to 3.4 billion euros at the end of 2011 and he is only part way through this mission.

As well as implementing a cost-cutting alliance with General Motors, Varin is managing a multi-billion euro restructuring program that is aiming to sell off 1.5 billion euros of assets and reduce costs by 1 billion euros.

Europe's second-largest carmaker is already half way there, having raised about 750 million euros in asset sales, through sell-offs that have included its headquarters offices in Paris for about 250 million euros and its Citer rental car business for 440 million euros.

Even the most incompetently run company would hardly seek to remove its CEO while in the middle of such a momentous restructuring and cost-cutting initiative.

"This kind of environment does not allow you to just kick out the CEO," Gaetan Toulemonde, an analyst for Deutsche Bank, told Automotive News Europe. "It is hardly the right time to get rid of the CEO now."

Varin will, of course, be judged on whether or not PSA can eventually meet its debt-reduction goals and eventually become profitable again.

But in the meantime, given that the automaker's restructuring is still ongoing, it's likely that investors and the PSA board will probably not reach a final verdict on the CEO before his major work is complete.

You can reach Bruce Gain at bgain@crain.com.

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