In just five years after its near-bankruptcy in 2014, the French carmaker PSA group reported record earnings for 2018, buoyed by the success of its Peugeot 3008 and 5008 SUV models.
The sales of the group jumped by 19%, to EUR74.03b, which translated in a normalized operating income of EUR5.69b, signifying a 43% increase in Y-O-Y terms. The increase was greatly boosted by its acquisition of Opel-Vauxhall.
The achievement becomes even more remarkable when one also considers that Opel-Vauxhall has been loss-making for the past 20 years, when it was being ran by General Motors (“GM”). PSA bought Opel-Vauxhall from its long-time American owners and managed to turn the division profitable in just its first full year of owning the brands. I’d imagine that GM’s executives will spend quite a lot of time trying to understand how PSA managed to do in just a year, what they couldn’t achieve in two decades of ownership. PSA’s business plan for the turnaround of Opel-Vauxhall, codenamed “PACE!” included the reduction of marketing and per-car production costs as well as the simplification of the division’s engines and platforms, by basing new models on existing PSA hardware. Does this mean that perhaps GM’s management lacked the skills necessary to run the business as it was implied by many analysts after the announcement of the results? Well, no, not necessarily. The reason for this is that GM, apart from Opel-Vauxhall, didn’t have much else to show in Europe. It owned Saab in Sweden for some time and also had a Chevrolet factory in Russia. Both of these brands make significantly different cars than Opel-Vauxhall, thereby reducing the potential for synergies, even in basic tasks. Opel-Vauxhall on the other hand, was not able to survive in the very competitive European market on its own. This is perhaps one of the most classic examples of why the exact same asset can have a fundamentally different value to different investors. What was an impossible to turn around, loss-making asset for GM, proved to be one of the best investments in the history of PSA, in just one year of operations.
Overall, the PSA group has two divisions at the moment: Peugeot-Citroen-DS (“PCD”) housing its legacy French brands and Opel-Vauxhall (“OV”). The former recorded an operating profit margin of 8.4% for 2018, while the latter reported a margin of 4.7%, for a weighted average margin of 7.7%. The initial goal of the group called for a margin of 4.5%.
The revised business plan of the group, now calls for a re-launch of Opel in Russia, expansion of Citroen in India and a re-launch of Peugeot in the US (which it left three decades ago after a dispiriting 4,291 cars sold in 1990) thereby rendering itself a truly global carmaker once again.