France weighs stake in ailing PSA
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PARIS -- The French government may buy a stake in PSA/Peugeot-Citroen if it is necessary to save the ailing automaker, a minister said today.
"Let's be clear: this company cannot, must not disappear," Budget Minister Jerome Cahuzac said on RMC radio. "We'll have to do what we have to do to save this company."
His comments came after PSA announced second-half writedowns of 4.13 billion euros ($5.53 billion) as Europe's plunging auto sales pushed down the value of its assets.
Cahuzac was responding to a report in the daily newspaper Liberation that said the French government is studying taking a PSA stake as an "hypothesis of last resort." The paper also said the government wants PSA CEO Philippe Varin to be replaced by former EADS chief Louis Gallois.
Asked about the government investing in PSA, Cahuzac said: "It's possible."
Other senior government departments played down Cahuzac's remarks. Buying a holding in PSA is not currently on the agenda, a representative for Prime Minister Jean-Marc Ayrault said. An official at France's finance ministry said: "The priority for the group is to pursue its recovery plan, to strengthen its alliance with General Motors and to continue its development."
PSA declined to comment when contacted by Automotive News Europe.
PSA has already taken several steps, such as selling assets to raise cash, to navigate the sales slump in Europe. It's budding alliance with GM, formed last year, is designed to lower product-development and purchasing costs.
The GM deal is expected to generate $2 billion for the partners in annual cost savings and sales improvements within 5 years. The two automakers plan to use a PSA platform to develop a new generation of small cars.
Europe’s car market is forecast to drop to 12.3 million vehicles this year, 23 percent below the pre-crisis peak, IHS Automotive estimates. GM is closing a German factory and Ford Motor Co. is shutting three plants across Europe in response. Peugeot CFO Jean-Baptiste de Chatillon said Thursday the market may fall as much as 5 percent this year.
On Thursday, PSA said it is writing down the automotive division's property, plants and other assets, which were valued at 14.5 billion euros at the end of June, by 3.89 billion. PSA is also taking a second-half charge of 243 million euros for what it called "onerous contracts."
Europe market pessimism
"This calculus results from cautious assumptions about the European economic environment," Chatillon told reporters. "We think that this European car market will remain affected by the crisis for a long time."
A Paris-based trader told Reuters: "The (writedown) measure will not hit cash flows, nor will it affect liquidity or solvency. It does however show that the outlook for a recovery in the European market is more pessimistic than it was six months ago."
Harry Wolhandler, chief executive of Amilton Asset Management, said: "The writedowns reflect Peugeot's difficulties, namely that it concentrated too much on growing in Europe and ended up missing out on international growth and alliances."
PSA, whose European deliveries in the region in 2012 dropped 13 percent, expects the market to contract as much as 5 percent in 2013, Chatillon said. The automaker is trying to stem losses that a union leader said last week are 7 million euros per day.
France has already offered the automaker 7 billion euros in bond guarantees. The European Union is currently reviewing the offer to determine whether its anti-competitive.
Net debt rises
PSA said net debt rose in the second half to 3 billion euros from 2.45 billion euros at the end of June. The automaker reports second-half earnings next week.
The writedowns, which are all non-cash, will directly impact PSA's net income for the half. The writedowns follow guidelines issued by the French securities regulator and do not impact the group's liquidity, solvency or cash flow targets, PSA said.
The writedowns are more than double PSA's current market value. PSA shares have plunged 57 percent in the last year, valuing the French carmaker, the largest in Europe after Volkswagen, at 2.08 billion euros. VW's shares during that time have climbed 25 percent, giving the German company a market capitalization of 79.1 billion euros.
CEO post
Liberation said the government could support a capital increase for the carmaker if necessary.
The paper said the state is pushing for Gallois, who ran EADS, parent of planemaker Airbus, for almost six years until May 2012, to take over as CEO from Varin. Gallois, 68, declined to take post, the paper said. The government appointed Gallois to PSA's board in December.
PSA's plan to eliminate 11,200 jobs and close a factory in Aulnay are on hold after a Paris court said last month that the automaker can't cut the positions until Faurecia, 57 percent-owned by PSA, informs its workers about the impact of the carmaker's restructuring. Faurecia is itself slashing 3,000 jobs in its home region by the end of this year.
Unlike PSA's domestic rival Renault, the French state has no holding in PSA. France nationalized Renault after World War Two and still holds a 15 percent stake. PSA remained private and is 25 percent owned by the Peugeot family.
Bruce Gain, Bloomberg and Reuters contributed to this report
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