PSA's Tavares reassures shareholders over Opel buy

PARIS -- PSA Group CEO Carlos Tavares gave the automaker's general shareholders their first detailed look at his plan to turn around the financial fortunes of Opel and Vauxhall, which PSA is acquiring from General Motors.

Speaking at the company's annual meeting here in Paris on Wednesday, Tavares noted that the pending agreement, announced March 6, would increase PSA's European sales by 50 percent, to three million vehicles. It would vault the company into the No. 2 position in Europe, behind VW Group but "far ahead" of its French rival Renault, he said.

That scale would pay dividends by providing a solid European base for global expansion and boost total spending on research and development by 50 percent, he said.

Tavares admitted that Opel would continue to lose money in 2017, but said PSA is in a "running start position" to stem the losses and find 1.7 billion euros ($1.85 billion) in synergies with PSA's Peugeot and Citroen brands by 2026.

"We have to admit that the losses are real and they will continue to be real in 2017," Tavares said, while noting that "very good things have been done by Opel under the leadership of General Motors," including cost cutting. "This situation at Opel resembles very closely the PSA situation in 2013, and this gives us confidence," he said. "We are ready to help this company recover and turn around."

Under an agreement signed in 2012, PSA has helped to develop Opel vehicles, including the Opel Crossland X and Grandland X SUV/crossovers and a yet-to-be named compact light-commercial vehicle. Opel recently confirmed that the next-generation Opel Corsa will use PSA technology.

"This is a good auspice for the future, because the three vehicles already represent 20 percent of Opel volume," Tavares said of the crossovers and the LCV, including "all the efficiency and productivity of the PSA Group."

Just 45 percent of components in Opel vehicles were sourced from Europe, he noted, while at PSA, the figure is 92 percent, leaving ample room for synergies and shared costs.

Divided restored

The shareholders were in a receptive mood to Tavares' pitch, having learned that they will receive a dividend for the first time since 2011, a payout of 0.48 euros per share for the 2016 year. Reflecting the company's turnaround, PSA said it will also add 5.13 billion euros in profits to cash reserves.

Investors also voted to approve Tavares' 2016 salary of 4.7 million euros, including a base pay of 1.3 million euros, and the rest in performance bonuses and equity. That represents a drop from 2015, when he earned 5.2 million euros -- and criticism from French president-elect Emmanuel Macron, the economic minister at the time, who described it as excessive, while acknowledging the executive's role in reviving PSA's fortunes. Tavares' base pay and incentive possibilities remain the same in 2017.

Financing approved

PSA also cleared a procedural hurdle with its purchase of Opel and Vauxhall as well as GM's European financing arm, as shareholders approved arrangements to issue warrants as part of the payment to GM. The warrants, which had a value of 670 million euros when the deal was announced on March 6, will convert to PSA shares no earlier than five years from the conclusion of the deal. PSA will pay 1.1 billion euros in cash to GM.

The acquisition is scheduled to be completed toward the end of this year, pending scrutiny by European antitrust regulators. PSA has said it expects to win approval.

Tavares took a question from the floor on PSA's recent troubles in the Chinese market, where sales have fallen by double digits two years running. "Our performance in the Chinese market does not meet expectations," he said, adding that he took full responsibility. "We've lost market share, we've lost profitability. Our speed of adaptation is insufficient" to react to domestic competitors who have improved design and product.

But, he said, "We are not yet ready to make personnel changes."

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