Business

Peugeot owner PSA sees profits nearly double

  • 23 February 2017
  • From the section Business
Peugeot 5008 SUV Image copyright Getty Images

The owner of French carmaker Peugeot has reported a near doubling of profits, as it considers buying General Motors' (GM) Opel and Vauxhall brands.

Net income at PSA Group, which also owns Citroen, jumped 92% last year to 1.73bn euros (£1.47bn).

PSA's possible purchase of GM's European brands has raised fears of job losses at Vauxhall in the UK.

On Wednesday, PSA said it had promised Theresa May it would "develop" the Vauxhall brand if the deal goes ahead.

But it offered no further commitments to protect the 4,500 jobs making cars at Ellesmere Port and vans in Luton.

The two firms are expected to sign a statement of intent during the next two weeks.

General Motors announced last week it was in discussions over selling its European brands, Opel and Vauxhall, to PSA. That prompted speculation that the French company would cut capacity by closing plants.

Image copyright Vauxhall
Image caption Vauxhall's Ellesmere Port factory in Cheshire is known as "the home of the Astra"

Politicians in Germany and the UK have begun lobbying on behalf of their own locations. On Wednesday evening UK Prime Minister Theresa May spoke to PSA chief executive Carols Tavares on the telephone.

During the call, PSA chief executive Carlos Tavares "expressed his willingness to develop further the iconic Vauxhall brand for the benefit of its faithful customers", PSA said in a statement.

PSA said its operating margin, the level of profit it makes on sales, had risen from 5% in 2015 to 6% in 2016. It is the third year in a row that operating margin, sales and net profit have improved at the group, which flirted with bankruptcy in 2014.

As a result of the company's improved performance, chief financial officer Jean-Baptiste de Chatillon said PSA was in a position to make "profitable investments in the interest of our shareholders".

However, he added that the outcome of the talks with GM were not yet certain.


Analysis

Image copyright Getty Images

Theo Leggett, BBC business reporter

According to Carlos Tavares, Opel needs help. It has, he says, been making red ink for 10 years and burning 1bn euros in cash every year.

If you put it that way, it's easy to see why General Motors wants to get rid of it - but why is PSA Group so interested in taking it on?

In today's press conference, Mr Tavares set out a few reasons. And one of them seems to be the international reputation of German-built cars compared to their French rivals.

In some countries, he said, French-built cars simply don't sell. He didn't specify where, although the United States would appear to be a prime example.

Combining the two companies would also generate cost savings. And having engineered a rescue for PSA itself, when the French giant came close to going bust in 2014, Mr Tavares knows how to turn a failing business around.

So there's logic in the planned deal. But Mr Tavares can have no illusions about the political sensitivities involved. Despite his promises to honour existing labour agreements, analysts believe job cuts at some point are inevitable.

So the road ahead could be a rocky one.


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