GM Couldn't Do It, Now Peugeot Tries to Fix Opel

By William Boston Features Dow Jones Newswires

After fixing a French car manufacturer long derided by the industry as an eternal also-ran, Carlos Tavares is turning his attention to the business General Motors Corp could never fix.

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Mr. Tavares, who on Wednesday unveiled another quarter of solid growth at PSA Group, maker of Peugeot and Citroen cars, is turning up the pressure on Opel, the loss-making German brand he acquired from GM this summer.

Over the past three years, the 59-year-old native of Portugal has taken PSA from near death to Europe's most profitable maker of large volume cars. The acquisition in August of GM's European businesses Opel and Vauxhall hoisted the French car maker into the number two spot in Europe by sales behind Volkswagen AG.

Mr. Tavares hasn't wasted time in moving to improve returns.

In response to sluggish sales of some Opel and Vauxhall models, Peugeot said it would cut nearly a quarter of the 1,800 employees at Vauxhall's Ellesmere Port plant in the U.K.

Peugeot said it would be in "a better position to consider future investments" in the Vauxhall business once the terms of any post-Brexit trade deal between the U.K, and the European Union become clear.

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Mr. Tavares has also been pressing the German management at Opel to accelerate efforts to return to profit as Europe's booming car market is beginning to plateau.

Since the acquisition closed in August, Peugeot and Opel managers have hammered away at a restructuring plan that German labor leaders warn could put thousands of Opel engineers out of a job.

Peugeot's path to profitability was painful.

After Mr. Tavares took control in 2013, the company was bailed out by the French state and Chinese auto group Dongfeng Motor Group, now its two biggest shareholders. Peugeot, running big losses amid mounting labor costs and falling sales, slashed jobs and production to cut costs, skidding past a looming bankruptcy.

But the efforts paid off. On Wednesday, Peugeot reported a 31% rise in third-quarter revenue to EUR15 billion ($17.64 billion), driven by strong growth in all regions except China and healthy demand for its new Peugeot 3008 and 5008 sport-utility vehicles. The revenue includes two months of business from the Opel Vauxhall division. Without Opel Vauxhall, Peugeot sales rose 7% to EUR12.2 billion in the quarter.

Peugeot didn't report third-quarter profit. On a call with analysts, Jean-Baptiste de Chatillon, the company's finance chief, said losses at Opel Vauxhall would weigh on Peugeot's earnings in the second half of the year, saying: "The recovery plan will kick off beginning in 2018."

Peugeot's share price dipped 0.6% on the news to EUR20.27. The company's share price has nearly quadrupled since Mr. Tavares was appointed chief executive in November 2013.

With Peugeot's core business profitable again, Mr. Tavares embarked on an expansion strategy earlier this year, acquiring GM's German Opel unit and its British Vauxhall subsidiary for EUR2.2 billion.

After years of losses at Opel, GM Chief Executive Mary Barra pulled the plug on the German business after running it for more than 80 years. On Tuesday, GM said it took a $2.3 billion charge related to the sale of Opel Vauxhall.

Opel's German managers have traditionally blamed GM for the company's history of losses and the brand's failure to keep up with its more illustrious European peers -- an argument Mr. Tavares has dismissed as a convenient but disingenuous excuse.

"Opel's results are mainly the consequence of Opel's decisions," he told German daily newspaper Die Welt last week. He has previously said that Opel's production costs were 50% higher than those at Peugeot's French plants.

Peugeot sells 35 new cars per employee, compared to 30.4 for an Opel or Vauxhall employee, according to a recent study by Ferdinand Dudenhöffer, head of the Center for Automotive Research at Duisburg-Essen University. He said that Opel would need nearly 5,000 fewer employees if its factories were as productive as Peugeot's French plants.

Once they looked under the hood at Opel, Peugeot officials were also surprised to discover that the German car maker was on a trajectory to miss the European Union's 2020 greenhouse-gas emissions targets, which could result in significant fines.

"We are working very hard on the team to change that," said Mr. Chatillon, Peugeot's finance chief. "We have to meet the targets."

Mr. Tavares wants Peugeot and Opel to share technology and development to eliminate duplication, particularly in high-cost areas such as engine design and production. As a first project, the next generation of Opel's popular Corsa compact will use Peugeot technology.

Opel uses nearly three times as many individual model platforms as Peugeot, requiring a larger number and variety of components from engines and transmissions to steering wheels and brakes.

Taking a page from Volkswagen's playbook -- which shares technology development across its eight car brands to avoid duplication -- Mr. Tavares plans to create technology centers that share development between Peugeot, Citroen, Opel and Vauxhall.

However, while efficient, the changes could affect thousands of jobs at Opel.

--Max Bernhard contributed to this article.

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

October 25, 2017 05:52 ET (09:52 GMT)