PSA resists merger, answers Marchionne with sales growth

PSA resists merger, answers Marchionne with sales growth

April 23, 2010 06:01 CET

PARIS (Bloomberg) -- PSA/Peugeot-Citroen, the carmaker predicted by Fiat S.p.A. CEO Sergio Marchionne to be the next European candidate for an auto merger, has won more time to prove that it can go it alone.

Marchionne announced Wednesday plans to separate carmaking from its industrial units such as trucks and construction equipment to facilitate future alliances, saying he has a “long list” of further candidates for partnerships. PSA CEO Philippe Varin says he plans to build on its looser industrial cooperation with the Japanese carmaker Mitsubishi Motor Corp. and similar pacts with Fiat, BMW AG and Ford Motor Co.

PSA, which broke off talks last month over a share swap with Mitsubishi, reported a 28 percent surge in first-quarter sales earlier this week, compared with gains of 15 percent at Fiat and 19 percent at Volkswagen AG.

PSA, Europe's second-largest automaker after VW, improved its outlook, predicting “significant” first-half operating profit before one-time gains and losses.

PSA "made it very clear that it doesn't think it lacks scale,” said Max Warburton, an analyst at Sanford C. Bernstein in London. Warburton, who rates the carmaker's shares “market perform,” described PSA's message as “Back off Sergio, we're doing OK on our own.”

Fiat and PSA spokesmen declined to comment when asked whether there had been any talks or approaches on a possible link-up between the two companies.

Fiat makes about 2 million cars annually, while Chrysler Group, in which Fiat acquired a 20 percent stake last June, manufactured 1.3 million last year. PSA sold 3.2 million vehicles in 2009.

PSA's first-quarter revenue rose to 14 billion euros ($18.7 billion), beating the 13 billion-euro average estimate of analysts. Sales were helped by the new Peugeot 3008 minivan and Citroen C3 Picasso minivan, which took market share from rivals including VW.

In March alone, PSA's European deliveries rose 21 percent to 218,552, more than double the market's growth, while Fiat's fell 3 percent to 133,758, according to figures from the European automobile manufacturers association, ACEA.

PSA's first-quarter market share gained 1.1 percentage point to 13.9 percent, compared with declines of 0.3 point to 8.8 percent for Fiat and 0.5 point to 20.3 percent at VW.

‘Tangible results'

A sales shift toward pricier models and versions contributed 7 percentage points to Peugeot's revenue increase, according to Natixis Securities analyst Georges Dieng.

Improving sales mix is a “first tangible” result of the PSA's "competitive premium" strategy introduced two years ago, said Dieng. “This should offer it resilience in the face of the decline in the market expected in Europe.”

PSA forecasts “significant” first-half group operating profit before one-time items, with “positive” contribution from the auto division. In February, the company had predicted that the overall group figure would be positive.

Fiat reported a 25 million-euro net loss for the first quarter Wednesday and said the carmaking unit would continue to be a drag on earnings throughout 2010.

Marchionne unveiled a five-year business plan, forecasting 6 million in combined car sales between Fiat and Chrysler by 2014. Fiat will spin off its trucks, tractors and industrial operations, leaving its carmaking, powertrain and components businesses in Fiat.

The CEO said the separation will make it easier to seek future opportunities through alliances and partnerships.

Earlier this month, Renault SA and its Japanese affiliate Nissan Motor Co. announced a 3.1 percent stake swap with Daimler AG to underpin a broad cooperation accord.

On April 12, Marchionne told reporters that “the next merger will probably be French.”

“They tried with Mitsubishi and they will try with someone else,” he said at the time.

Last year, Marchionne said that many viewed a Fiat deal with PSA as a “marriage made in heaven.” The two already have a successful light commercial vehicle venture.

While Fiat's Latin American operations would be a “gem” for PSA, there is “very little attraction” in combining the two carmakers' excess European capacity, Bernstein's Warburton said. “A French or Franco-Italian management team would have even more difficulty closing Fiat plants” than Marchionne already does.

“With Peugeot now making real gains in Europe, management will be in less of a rush to find a partner,” he said.

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