Thursday, August 21, 2003

Peugeot: a surprising survivor In a recent Wall Street Journal article ("Peugeot's Formula for Success," August 4, 2002) attributes PSA Peugeot's increasing market share and profitability to the fact that it avoided some of the merger mania of the 1990s and concentrated on bettering its product and its manufacturing. The company bucks the trend: it makes no SUVs, carries no luxury cars in its lineup, has no plans to re-enter the U.S. market (from which they had an ignominious retreat.)  But thanks to savvy management, it is now one of the few profitable auto companies and is growing fast. By contrast, merger-crazy GM, Ford, and Daimler Chrysler have all had problems, in spite of, or maybe because of, recent mergers. But though PSA Peugeot has not undertake any mergers since its painful 1974 acquisition of Citroen, it does have a number of joint ventures that are working to both party's profit. "The key to success these days," [CEO Jean-Martin Folz] argues, "is not amassing economies of scale with a merger but producing innovative cars in rapid succession." That's because today's buyers want a far more diverse range of products than ever before - convertibles, SUVs, wagons, subcompacts, and micro cars. Managers can't crank out that many products, Mr. Folz contends, if they're struggling to integrate two companies. Instead, he formed partnerships on particular projects to cut the cost of developing big-ticket components: diesel engines with Ford, a min-car with Toyota Corp., and small gasoline engines with Bayerische Motoren Werke [BMW]. Through smart engineering, better planning, and new markets in Eastern Europe and China, Peugeot's growth has been steady during a down time for the industry. A side note in the article, about GM and Fiat's joint venture: GM and Fiat say they're saving millions by combining their purchasing operations, and merging their engine and transmission plants…But Fiat's sales are plummeting and its losses widening, and GM is trying to wriggle out of an option that could compel it buy the remaining 80% of Fiat's auto division." Peugeot may well survive the next round of consolidation in the world auto industry. As this table from the WSJ shows, it is moving up in the ranks. Manufacturer 2002 units sold (millions) Rank 2002 Rank 1998 General Motors 8.42 1 1 Ford 6.47 2 2 Toyota 6.20 3 3 VW Group 4.84 4 4 Daimler Chrysler 4.15 5 5 PSA Peugeot 3.27 6 10 Honda 2.82 7 8 Hyundai 2.76 8 13 Nissan 2.64 9 6 Renault 2.29 10 9 Source: Global Insight Automotive Group Note:  Renault owns 44% of Nissan   6:52:06 PM

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