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Motion & Emotion

06 September 2019 by jbchevrel

Peugeot SA (PEUGOT – 94bp 5y mid) and their Chinese state-owned partner, the automaker Dongfeng, announced plans to restructure their JV together (Dongfeng Peugeot Citroen Automobile Co., ‘DPCA’). The plan is to cut costs and boost sales to 400k/y vehicles by 2025, i.e. +60%. It targets to cut b/e to 180k vehicles in 2019 and 150k vehicles between 2020 and 2021. DPCA will also consolidate resources, divest some idle assets and launch 14 models in next 3y. The news was received positively by the stock market, UG FP up +3% on the day, CDS didn’t move much, along with cash. Auto stocks were generally up, as car sales data from Germany and US both showed support while China and US negotiators outlined plan for the next round of trade talks. That announcement comes at a challenging juncture for PEUGOT in China. Indeed, DPCA’s contribution to PEUGOT’s earnings have dipped from +€350m in 2015 to -€234m in 2018. And the contribution so far this year has been -€163m in H1-2019. DPCA’s output has been falling -64% over the same period. PEUGOT had already highlighted during its H1-2019 result release plans to downsize and cut fixed costs (-23% in DPCA alone). They had also said that they planned to reach b/e this year in Asia, which looks quite unlikely, as volumes are so far -24k (as of H1-2019), vs 180k ‘break-even’. PEUGOT is generally seen as having a strong track record in restructuring, especially after the Opel integration. However here, the fact that it is a JV leaves them only partial control, and the environment in China is challenging. So this is likely to make things more difficult. PEUGOT is now rated Baa3/BBB-/BBB- and is widely seen as included in the next Main series 32, on the back of that. Interestingly, after 2020, every new model is supposed to have an electric version, embracing this morning BBG-reported Chinese plans weighing a 60% target for all autos sold in the country to be electric by 2035. It looks far from here, as it would be 12x more than today’s c5%. Elsewhere in the auto sector, BBG reported DOJ opened an antitrust probe into F HONDA BMW VW that reached a pact on compromise tailpipe emissions with California.