Next PSA Announcement: Coming to America?
Most Americans outside of the auto industry probably have never heard of PSA Group or its Peugeot and Citroen units (two of Europe’s most storied car brands with histories dating back to 1889 and 1919). But that may change—eventually. The French company, which recently inked a deal to buy General Motors’ Opel/Vauxhall operations in Europe for about $2.3-billion, has plans to return to the U.S. market sometime next decade. Being successful in the U.S. is no easy task: Citroen and Peugeot exited the American market in 1974 and 1991, respectively.
PSA has made great strides in recent years after struggling for much of the previous four decades. In 2014, the French government and China’s Dongfeng Motor Group each acquired a 14 percent stake in PSA—reducing the Peugeot family’s share to a similar level—to help bail out the cash-strapped company. CEO Carlos Tavares has implemented a host of cost-cutting measures, and the company began focusing on more profitable models and revived Citroen’s “DS” premium sub-brand. Last year, PSA sold 3.14-million vehicles worldwide, up 6 percent from 2015.
To reduce the company’s dependence on Europe, which accounts for about 60 percent of its sales. PSA launched its “Push to Pass” strategic plan last year. The plan calls for launching 26 new or redesigned cars by 2022, expanding into North America, and growing its operations in Asia, India and other emerging markets. To this end, PSA inked a deal with India’s Hindustan Motors earlier this year and submitted a bid to buy Malaysian carmaker Proton Holdings and its Group Lotus subsidiary in England.
The Opel deal gives PSA nearly 17 percent of the European new vehicle market, as it leapfrogs Renault into second place behind Volkswagen Group. PSA is targeting annual savings of $1.8 billion by 2025 through economies of scale, eliminating redundant costs, and increased platform and parts sharing. The first new PSA-based Opel model is expected to launch around 2020, with another five due by 2023. PSA also expects to benefit from Opel’s engineering expertise and electric vehicle technology.
But analysts question the wisdom of the acquisition, noting that Opel has long been a financial drag on GM’s bottom line with losses for the European unit totaling $19 billion over the past 17 years. And it is not the first go around for PSA and Opel. A short-lived earlier alliance between the companies ended in 2013 when GM sold a 7 percent stake in the French carmaker after expected savings didn’t materialize. In fact, PSA’s track record with buying the European operations of U.S. companies isn’t good—its purchase of Chrysler Europe and its mounting debt in 1978 sent the French company into a tailspin through 1985.
The new Opel deal likely will be an uphill battle—other automakers have struggled with similar mergers and acquisitions—and could hurt the company’s global expansion plans by diverting its resources. But to its credit, PSA is taking a measured approach to returning to the U.S. Before it tries to market Peugeot, Citroen, DS—or even Opel—models in the market, PSA plans to test the waters and build brand recognition in another way. In February, PSA and insurance provider MAIF announced plans to invest in ride-sharing firm TravelCar and launch a pilot program in the U.S. this spring at airports in Los Angeles and San Francisco. TravelCar currently has some 300,000 users at more than 200 locations in 10 European countries.
The TravelCar partnership is part of PSA’s growing Free2Move mobility services unit, which the company hails as its second core business after car manufacturing. PSA launched a French car-sharing partnership in 2015 and last December created a business to identify emerging digital and mobility businesses worldwide and invest in startups. Tavares believes that providing such mobility options will help PSA learn more about changes in North American consumer tastes and is the first step to re-entering the market.
Time will tell whether PSA, which stands for Peugeot Societe Anonyme (public company) in French, ever becomes a household name in the U.S.