The French Government opposes PSA Chiefs pay package, even though he helped turn the company around.

French government representatives on PSA/Peugeot-Citroen's board oppose the sharp increase in remuneration of the automaker's CEO Carlos Tavares, a French newspaper reported.

Tavares saw his total remuneration reach 5.24 million euros ($5.9 million) for 2015, including his fixed and variable salary and long-term incentives, up from 2.75 million euros in 2014, according to the company's annual report.

The French government, which owns 14 percent of the carmaker, has recommended that companies in which it holds a minority stake should cut the leader's remuneration by 30 percent, Les Echos reported on its website on Monday.

PSA returned to profitability in 2015 after four years of losses and achieved its performance targets ahead of time.

PSA and the French finance ministry declined to comment on the Les Echos report, which did not cite sources.

PSA is due to present a new strategic plan on April 5.

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Peugeot family to hold meeting to discuss the future of their shareholding now it has been reduced.

The Peugeot family plans to hold a meeting in June to work out its differences over the future of its 14.1 percent stake in PSA/Peugeot-Citroen, Les Echos newspaper reported this week. The meeting would mark a year since the family relinquished control of the carmaker, opening up a rift between two senior family members, the newspaper said.

The French government and Dongfeng, PSA’s Chinese partner, now both hold matching 14.1 percent stakes after a deal that injected fresh capital into the business and which was opposed by senior family member Thierry Peugeot. He left the PSA board in July last year.

The report said Thierry Peugeot was also expected to step down from the board of the family holding company FFP at its shareholder meeting in May, but wants to keep a grip on the business, and has built another 0.3 percent stake in the company through a separate holding company, Sapar.

According to the report, some members of the Peugeot family fear that Robert Peugeot, the FFP's representative on the PSA board, wants to reduce the size of the family's holding. They want to see a resolution at the June meeting that would exclude such an option, even though Robert Peugeot said in March that no such move was planned.

The June meeting may also look at a contingency plan in case the government decides to reduce its stake, the newspaper reported.

French Government set to interfere further into Renault-Nissan alliance, with a large share purchase.

The French government increased its stake in Renault, boosting its influence as the automaker's biggest shareholder in a challenge to CEO Carlos Ghosn that risks destabilizing the Renault-Nissan alliance.

France will temporarily raise its holding to 19.7 percent from 15 percent and has already amassed most of the additional shares, the finance ministry said on Wednesday.

The government said the move was designed to secure double voting rights for longer-term investors -- itself included -- after a vote at Renault's April 30 shareholder meeting.

Legislation introduced under Socialist President Francois Hollande doubles the voting rights of longer-term shareholders in French companies unless they opt out of the so-called Florange law by a two-thirds majority.

By increasing its Renault holding, the government aims to block the automaker's "one-share, one-vote" proposal to opt out of the Florange law at the April 30 meeting. The move amounts to a public put-down to Ghosn, who has headed Renault and Nissan for the past decade.

George Galliers, an automotive analyst with Evercore ISI, said: "It seems that Renault is being used as a political football." The intervention clearly "goes against the company's wishes," he said.

The government's announcement appeared to come as a surprise to both Renault and Nissan, its partner in a 16-year-old alliance. "This was completely unexpected," a senior Renault source said. "Nissan was not given any warning."

The companies declined to comment.

French Economy Minister Emmanuel Macron said the Renault share purchase reflects government determination to use all available tools "to promote a progressive, long-term kind of capitalism that supports workers and helps companies grow."

The government said it would pare its Renault stake back to 15 percent after the shareholder meeting, outlining a system of put options that have been secured to guarantee a minimum price when the 14 million shares are resold.

Alliance future structure

The share purchase could also complicate any move to secure the future of the Renault-Nissan alliance by replacing its reciprocal shareholdings with a better defined holding structure or even a full merger before Ghosn's contract expires in 2018.

Renault has a 43.4 percent full-voting stake in Nissan and Nissan has a 15 percent non-voting stake in Renault. While Nissan is deprived of any votes on its 15 percent stake in Renault, the voting weight of the government's equivalent holding will surge under the new law.

"Nissan is already unhappy at not being able to exercise its votes in Renault," the Renault source said. "This demonstrates a very clear determination by the state to weigh on any future decisions on the future of Renault and the alliance."

Ghosn has previously ruled out a merger between Renault and Nissan but said the capital structure of the partnership could be reviewed before 2016.

Renault shares were little changed after the government's announcement before eventually rising 0.8 percent to 85.92 euros at 13:25 CET. Shares in Nissan closed 1.2 percent lower in Tokyo.

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France to gradually pahse out Diesel powered cars in favour of electric powered one.

France wants to gradually phase out the use of diesel fuel for passenger cars and will put in place a system to identify the most polluting vehicles, Prime Minister Manuel Valls said.

Next year, the government will launch a car identification system that will rank vehicles by the amount of pollution they emit, Valls said. This will make it possible for local authorities to limit city access for the dirtiest cars.

"In France, we have long favored the diesel engine. This was a mistake, and we will progressively undo that, intelligently and pragmatically," Valls said.

About 80 percent of French motorists drive diesel-powered cars.

Taxation would have to orient citizens towards more ecological choices, Valls said in a speech on Friday. The 2015 state budget measures would seek to reduce the tax advantage of diesel fuel versus gas.

The government has announced it will raise the so-called TICPE excise tax on diesel by 2 euro cents per liter, bringing in 807 million euros to state coffers in 2015.

Valls also said the government was working on plans to widen the number of beneficiaries of a subsidy for the conversion of old diesel engines in areas with anti-pollution plans.

Energy Minister Segolene Royal announced earlier this year that drivers scrapping diesel-powered cars to buy an electric one would be entitled to a bonus of up to 10,000 euros ($13,500).

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PSA to halve lineup in push for 2% margins by 2018

PSA/Peugeot-Citroen outlined plans to cut its model lineup by almost half and to turn Citroen's DS unit into a separate brand in a bid to restore the automotive division’s profit.

By 2018 the carmaking unit’s operating margin will amount to 2 percent of sales, with the figure rising to 5 percent in the 2019-2023 period, CEO Carlos Tavares said today in his strategic review of the Paris-based automaker. 

Tavares, 55, became head of PSA at the end of March to guide a reorganization after cumulative net losses exceeded 7.5 billion euros ($10.4 billion) in the past two and a half years.

PSA said today that the strategy hinges on reducing the number of models to 26 vehicles from 45, as well as a push into markets outside Europe, funded in part by bringing in Chinese partner Dongfeng Motor Corp. and the French state as investors alongside the Peugeot founding family.

"The group will continue to reposition the three brands, while clarifying their lineups," PSA said in a statement. Scaling back the range of models will allow the company to "improve market coverage and improve margins by targeting the most profitable segments." 

The DS nameplate, revived five years ago as a higher-priced small-car range, will get its own separate management team amid an "aggressive" push into China. The brand will sell six vehicles by 2022.

PSA said it is reorganizing sales operations, and reiterating a target to triple Chinese deliveries in partnership with Dongfeng by 2020, along with restoring profit in Russian and Latin American businesses.

"What we're going to stop is a mindset where in order to cover fixed costs, we're going to sell cars at a loss," Tavares said today on a conference call with analysts. "The profit culture is something that we need to put ahead of everything else."

Spending on research and development will average 7 percent to 8 percent of revenue in the next three years, Tavares said today on a conference call. PSA is targeting 2 billion euros in operating free cash flow in 2016 through 2018, the company said.

'Minimum requirement'

Erich Hauser, a London-based automotive analyst at International Strategy & Investment Group, said: "It seems to be the minimum requirement, but it’s a start. When you run a big ship like this, you can’t expect to turn it around in a few years."

Dongfeng and France will each contribute about half the money for a 3 billion-euro capital increase planned by PSA in exchange for 14 percent stakes apiece, according to an agreement reached in February. The family’s ownership will drop to 14 percent from the current 25.5 percent, ending their control of the 118-year-old carmaker. 

Tavares joined PSA in January from French rival Renault, where he was chief operating officer, to succeed Philippe Varin as CEO. The business plan puts Tavares’s stamp on the carmaker’s revival after Varin, 61, arranged to bring in the outside investors and started developing upscale models for the Peugeot brand.

Varin introduced Citroen’s premium DS vehicles in 2009, taking the name from an iconic model produced from 1955 to 1975.

“What’s really interesting is that Tavares is clearly taking a leaf out of Renault’s Drive the Change plan,” International Strategy’s Hauser said. “It’s very similar: in the very near term, it’s about fixing cash and in the longer run, it’s about returning to profitability.”

PSA was among the carmakers hardest hit as industrywide European auto sales contracted over six years to a two-decade low, with the company’s market share narrowing to 10.9 percent in 2013 from 12.8 percent in 2007.

Job cuts

Varin set a target about four years ago for PSA to generate 50 percent of its deliveries outside Europe by 2015.

Varin responded by starting a cutback of 11,200 jobs in France, or 17 percent of its work force in the country, shutting a plant near Paris last year and bringing out new models, such as the 2008 small SUV, to revive demand.

The proportion of PSA’s non-European sales increased last year to 42 percent, with China accounting for 20 percent of the total, from 38 percent in 2012.

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How new PSA CEO Carlos Tavares plans to revolutionise the ailing company.

New PSA/Peugeot-Citroen CEO Carlos Tavares takes over an automaker that has lost more than 7 billion euros in the last five years because he says, "making money was not the core value here." That is one of the first things the 55-year-old former No. 2 at Renault plans to change. Other challenges include reducing PSA's bloated car lineups, strengthening the automaker's presence in China, adjusting the company's European production footprint and navigating the potential minefields that come with having to please powerful new shareholders.

Tavares welcomes the long list of tough tasks. "When you have the opportunity to contribute to a turnaround, I think that's exciting," he told Automotive News Europe.

On April 14, Tavares, PSA’s third CEO in five years, will unveil his Back in the Race recovery plan for Europe’s second-largest automaker after Volkswagen Group. The straight-talking Portuguese national shared his views on the problems PSA faces at the Geneva auto show last month. Based on his comments, as well as feedback from industry watchers, the automaker has a number of challenges ahead to end its massive cash burn and position itself for long-term success. Tavares’s key tasks include:

• Increasing operating profit: Tavares says to do this PSA will need to sell its cars “at the right price.” It also must reduce production costs and work efficiently with suppliers.

• Reduce working capital: Tavares says a key here is to streamline PSA’s inventory of unsold vehicles, which he finds much too high.

• Manage cash better: Tavares wants all investments to provide an adequate return. He believes PSA should abandon car segments where its models are unprofitable and that it needs to avoid oversaturating segments.

• Invest in DS: Tavares wants to transform the Citroen upscale subbrand into an internationally recognized stand-alone luxury marque that can compete with Germany’s premium brands.

• Focus on China: PSA needs to build even stronger ties with partner and part owner Dongfeng Motor.

• Reposition in emerging markets: PSA must reduce its product lineups in money-losing countries such as Russia and Brazil.

Sharper focus

Tavares says PSA will stop making unprofitable models and focus on vehicles that generate high volumes and strong margins, something he did successfully while he was chief operating officer at Renault from 2011 until last summer. “His accomplishments at Renault are remarkable and show what is possible,” Sascha Gommel, a Frankfurt-based analyst at Commerzbank, told Automotive News Europe.

One segment where PSA has potential to streamline is compact cars. With the recent addition of the Citroen C4 Cactus, PSA offers five compact hatchbacks for two brands (the others are the Citroen C4 and DS4 and Peugeot 308 and 3008). Only Volkswagen Group offers the same number of compact hatchbacks, but it spreads them over three brands (Audi A3, VW Golf, Golf Plus and Beetle and Seat Leon). There was a huge difference in demand as VW Group’s compact hatchbacks had combined sales of 816,000 in Europe last year compared with PSA’s 287,000, according to data from JATO Dynamics. Analysts say one reason for the big difference is that PSA models lack key features offered by VW Group models.

“The Peugeot 308 competes against the Golf, but it does not have four-wheel drive or an automatic transmission. Tavares clearly needs to change PSA’s product portfolio,” said Florent Couvreur, a Paris-based analyst at CM-CIC Securities.

Not so French

Couvreur sees two other problems that Tavares needs to address: PSA’s lack of scale and its excessive French-ness. “If it can’t share development costs with other partners, then PSA will continue to lose money,” she said. “For example, PSA’s agreement with Ford for diesel engines works well, now Tavares needs to seal other agreements like this.”

Couvreur also believes that PSA needs to focus more on making cars that appeal to customers outside its home market. “Today PSA makes cars for French people, with a focus on diesel engines, manual transmissions and hatchback bodies. Tavares must make sure that PSA puts cars in the pipeline that people will want to buy outside of France and around the world,” she said. That means more gasoline engines, more automatics and fewer hatchbacks.

PSA is set to announce that it will spend more on r&d and that it will develop technologies for a smaller range of cars that will appeal to a wider base of customers worldwide, with less emphasis on France. The money for future investments will come in part from a 3 billion euro capital increase, in which China’s Dongfeng and the French state will initially contribute about half the money in exchange for stakes of 14 percent apiece. Banco Santander also will contribute funds through a partnership with PSA’s lending arm.

In terms of brand positioning, Tavares says the 308 compact, the 2014 European Car of the Year, epitomizes what he sees as Peugeot’s strengths: a convergence of the rigor, seriousness and robustness typical of a German car with the emotion of a Latin brand. He also considers the C4 Cactus a benchmark for future Citroens because of its comfortable design, ease of use and intelligent innovations.

Better pricing in Europe

Analysts say that to get PSA to break even by 2016 or sooner Tavares must reduce PSA’s cash burn by increasing the efficiency of its European production network and closing the pricing gap with competitors. “If Tavares can close the price gap with Volkswagen by 10 percent … that alone could fix the bottom line,” said Paris-based Deutsche Bank analyst Gaetan Toulemonde.

Commerzbank’s Gommel said Tavares proved at Renault that he knows how to turn around a brand’s pricing. “He can improve pricing more easily than when he was at Renault because PSA has a stronger brand reputation than Renault has.”

PSA shut its plant in Aulnay, France, last year and is looking at ways to lower production costs further in its home region. One way is to add models to the underutilized plants, but Tavares also wants to maximize the efficiency of PSA’s European factories, French newspaper Le Figaro reported. Tavares said in February that margins for the Citroen C-Elysee and the Peugeot 301, which are made in Vigo, Spain, are marginal and did not reflect an efficient use of capacity. “Tavares must improve PSA’s European footprint. Capacity is clearly an issue and existing capacity needs to be better utilized,” Gommel said.

Streamline Russia, Brazil

Tavares is expected to announce that PSA will streamline its offerings in South America and Russia. It is losing money in both regions, analysts say. PSA has a production capacity of 100,000 units in Kaluga, Russia, but the plant only produced 20,000 vehicles in 2013, French newspaper Le Mondereported. The automaker also offers more than 25 different vehicles in Russia, which Deutsche Bank’s Toulemonde says is too many, especially in a market that has been in decline since last year. “Tavares needs to sell fewer than 10 models there,” he said.

Added Commerzbank’s Gommel: “In South America and in other emerging markets where it already has local production, PSA must do better. It needs to improve its localization at its plants in emerging markets, where it continues to import too many parts.” Doing this would better protect PSA from exchange rate fluctuations, the analysts said.

Meanwhile, CM-CIC’s Couvreur pointed out that Tavares was instrumental in making Renault successful in eastern Europe and South America by offering limited ranges that sold in high volumes. “I think that PSA can be profitable in Brazil and in Russia in two to three years by adopting a more localized strategy. These two countries currently are Tavares’ problem markets,” she said.

Tavares enters PSA as the automaker is starting to gain traction in China. His job will be to strengthen the automaker’s ties with Dongfeng while avoiding potential conflicts over technology sharing. “Tavares must clearly make the boundary between PSA’s and Dongfeng’s technologies,” CM-CIC’s Couvreur said. She thinks that PSA needs to protect its expertise but fears that this will be difficult. “Dongfeng’s two representatives on PSA’s supervisory board will try to accelerate this technology transfer,” she said. Couvreur also fears that one day Dongfeng will leave the alliance with enough knowledge and technology to compete against its former partner. She says this has happened in China to companies such as Alstom and Airbus. “This is going to be a very touchy subject for Tavares,” she said.

More to do in China

Commerzbank’s Gommel said PSA’s challenge today, however, is expanding its presence in China and to do that it is relying heavily on Dongfeng. “PSA has fixed a lot of its problems in China, but it has more do. Clearly, the partnership with Dongfeng will help, but China still needs to become a more important part of its business,” he said.

Established in 1969 and based in the central Chinese city of Wuhan, Dongfeng already operates three factories with PSA in the world’s largest auto market. The partners plan to raise joint production to 750,000 vehicles by the end of 2015 from a record 550,000 units sold last year. Dongfeng wants to sell a combined 1.5 million Dongfeng and PSA vehicles a year in China by 2020.

Despite the big challenges that Tavares faces, the consensus is that he has the right experience, the right tenacity and the right amount of supervisory board support to fix PSA. “The Peugeot family has blocked certain decisions in the past that would have been good for the company,” Commerzbank’s Gommel said. “Tavares has a more independent board now that will not put the family’s interests first.”

Toulemonde also is optimistic about the new CEO’s chances. “Tavares’ track record speaks for itself,” he said. “You just have to look at what he has done at Renault, what he has done at Nissan and the perception the market has of him.”

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