All About Alternate Fuel Vehicles (AFV)

By John Reed, Financial Times, Sept. 4, 2007
http://www.msnbc.msn.com/id/20589412/

On Tuesday, as a triumphant-looking Christian Streiff outlined a plan to take Peugeot’s fight to Germany’s best-in-class carmakers, one listener in Paris sounded a discordant note. “Every time we see a new boss in the auto industry . . . people always speak of radical changes,” he said.  The journalist was speaking of how PSA Peugeot Citroën had historically made strides in areas such as lower-emission diesel engines and “stop-start” technology that turns off cars’ engines at intersections, only to see Germany’s producers parlay them into bigger profits.

However, the point had broader resonance: investors have heard many restructuring plans like Mr Streiff’s before. In an industry under unrelenting cost pressure with chronic global overcapacity, turnround plans are a cyclical recurrence, and in Europe alone Fiat Auto and Renault have similar plans in place, and Volkswagen has made its own cost-cuts.

The chief executive of Peugeot drafted his plan after taking over in February in the form of Cap 2010, a three-year-blueprint for which he laid out concrete performance targets for profitability, unit sales, and other areas for the first time Tuesday. It shares many features with Europe’s other automotive turnround plans, including reduced costs, faster vehicle development, and a push towards the premium market.

Renault – Peugeot’s closest rival – is managing to meet the earnings targets of its three-year plan outlined last year, and Fiat and VW are showing strong results from earlier restructuring efforts. As a result, they are becoming stronger competitors in the same saturated European markets as Peugeot.

Analysts on Tuesday said this raised doubts over Mr Streiff’s pledge to increase Peugeot and Citroën’s global sales to 4m by 2010, which is predicated on a projected rise of 300,000 units in western Europe, where overall car sales are flat. “If they had put out this plan two years ago, they would have gotten a warmer reception,” UBS autos analyst Max Warburton said Tuesday.

“We continue to see Peugeot as a strategically challenged company that is positioned in lower-growth product segments and markets,” JPMorgan analyst Philippe Houchois said in a research note earlier this week.

However, Stephen Cheetham of brokerage Sanford C. Bernstein on Tuesday deemed Mr Streiff as “highly likely to return PSA to financial health”. Rapid personnel changes, including Mr Streiff’s replacement of his chief financial officer last week, pointed to a CEO “not afraid to take decisions where needed”, he said.

With an operating margin of less than 2 per cent in its core automotive business and less than 3 per cent group-wide, Peugeot certainly has far to go to reach the 6 to 7 per cent Mr Streiff on Tuesday promised to reach by 2015.  In its favour, the carmaker already enjoys a position as Europe’s leading producer of low-emission vehicles at a time when lawmakers are drafting tighter new rules on the carbon dioxide in cars’ exhaust. Peugeot would use this position to its advantage with further investments in clean diesel and biodiesel vehicles, and stop-start systems, the last of which it wants to have on 1m vehicles by no later than 2011, Mr Streiff said.

At the Frankfurt auto show next week, Peugeot is due to unveil a hybrid diesel version of its 308. Peugeot plans to roll out 29 new or refreshed vehicles by 2010. Mr Streiff said he would also move Peugeot out of segments such as saloon cars, where the European market is contracting.

He also said he wanted to increase the differentiation between the carmaker’s two marques, with Peugeot positioned as a brand that “reassures” customers and Citroën one that “surprises” them. The company would also target a bigger share of the corporate market, including for commercial vehicles.