Peugeot makes a comeback in North America

[PARIS] With the auto industry in retreat, and US President Donald Trump threatening new tariffs on European cars, PSA Group is stepping into the fray staging a comeback plan for the Peugeot brand to North America.

The company started plotting a return in 2016 as part of a 10-year plan, and added a car-sharing service in Washington, D.C. last year. Chief Executive Carlos Tavares ratcheted up preparations for a comeback in October, calling the then-newly inked North American trade deal "very timely."

The move marks a rare show of confidence in an automaking industry whose fortunes turned last year after trade wars and slowing economic growth added to the hefty cash demands of keeping up with technological changes. Despite this, Tavares -- a onetime protege of fallen Renault SA titan Carlos Ghosn -- managed to return the Opel brand to profitability after acquiring it from General Motors Co. in 2017. PSA 's Peugeot, Citroen and DS premium brands too have topped margin goals.

Starting Peugeot sales by 2026 in the US, the world's second-biggest auto market, will help lessen PSA's dependence on Europe, where it delivered 80 per cent of its cars last year.

Highly Competitive

Still, entering the US, a market where Volkswagen AG's namesake mass-market brand has consistently struggled, will see PSA exposed to an "exceptionally competitive" market for compact vehicles, said Evercore ISI analyst Arndt Ellinghorst. "I would recommend PSA to tackle this with a partner rather than trying to establish a hardly known, new brand in the US," Ellinghorst said.

PSA, reporting annual earnings Monday, fell 4.8 per cent, the most in over three months, and was at 21.72 euros at 9:20 a.m. in local trading. The company's new expansion phase entering additional markets and electric models "looks much tougher, with higher risks" and will potentially require more spending, Morgan Stanley said in a note.

Most Recognition

PSA, which left the North American market in 1991 after poor sales, has already started engineering its future models to meet US safety and emissions rules. The company chose its Peugeot brand for the comeback, after last year saying it had most recognition among Americans.

"We are taking a pragmatic approach to entering the North American market," said Larry Dominique, president of PSA's North America division. "From the larger 'mobility services' revolution currently taking place, to the more fundamental models of retail, service, financing and logistics -- we'll continue to build our plan on careful, scalable solutions."

The decision to move back into North America comes as PSA is faced with slowing demand in Europe, where deliveries dropped for a fifth straight month in January. Uncertainty over a no-deal exit of the UK from the European Union, a technical recession for Italy and Germany's economy nearly entering a recession during the fourth quarter are weighing on car sales.

For the group, PSA targets an average automotive return on sales of 4.5 per cent during 2019 to 2021. This compares with an average margin of 7.2 per cent during 2016 to 2018, excluding the Opel acquisition. The new goal was an "all-weather" guidance that takes into account a soft or hard Brexit, Chief Financial Officer Philippe De Rovira told reporters.

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