When C.Steiff took on the position of President of PSA Peugeot Citroen a year ago he made some bold promises to shareholders about the rate at which he could restore
profitability. Most observers were sceptical. Now they have to join the faith – for a while at any rate.
The emerging markets worldwide have been growing at an extraordinary rate and it is that unpredicted growth that could make the difference between Streiff trebling operating margins to 6% by 2010 and not. Russian sales of foreign cars are up 64% year to date. China and Latin America are both up 30%. Eastern Europe is up 15%.
Streiff has abundant praise for his men on the ground. When asked how Brazil had been such a quick success his answer was the single word: “management.”
His commendation was directed principally at Vincent Rambaud, director general of the region and a veteran of overseas assignments for the French company.
PSA Mercosur now has its own engineering team empowered to design and specify its own local market derivative models. The rollout has started with a three-box version of the Citroen 4 Pallas which will be exported to both Spain and Turkey.
With the freedom to react quickly, PSA has suddenly raised its game from steady performer to market out-performer. In the first ten months of the year, sales were up 30% year on year with 64,000 cars and light vans driving market share up to 3.4%. Citroen, which has managed to slip into the unlikely position of a premium producer in Brazil, grew by 36% with 38,000 vehicles claiming 2% of the market. Peugeot 206s and Boxer vans are made in the Brazilian Port Real factory.
In Argentina, at El Palomar, Peugeot makes the 206, 307 and the Partner van. It also makes a 307 sedan – like the Citroen C4, a special treat for the local market. It is very similar in concept to the three-box variants built and sold by PSA in China. One of the few common features of emerging markets is that customers like plenty of mass for their cash as mass is deemed to represent wealth. Each territory though has done its own engineering for its own derivative to hone engineering skills. There is tough banter over which is the better job. Citroen specs the Pallas version to a very high standard and sells at a very attractive price which is the way in which it is earning the near-premium reputation.
Streiff says that South America is not the biggest earner in the PSA emerging markets portfolio – but it is the one with the biggest swing from loss to profit. Last year it lost EUR100m and has lost more than half a billion over the preceding five years as volume built up sufficiently to cover overheads. South America this year could make better margins than the parent in Europe. It is a thought that has Streiff smiling as he paints a picture of what the attentive observers will see when they emerge into the early summer sunshine of Rio.
Streiff has now taken the bet that South America will keep on growing and has invested heavily so that PSA can lift its market coverage from 40% this year, to 80% by 2010. He has given the local boys EUR400m for the product plan and EUR100m to expand capacity from 300,000 cars in Brazil and Argentina to 500,000. There will be more derivatives of the parent range aimed at the specific needs of the local markets. Present forecasts are that the new capacity will not be fully used before 2015.
The Argentinean press rated the C4 Pallas as car of the year last year. It was commended as sophisticated and richly equipped.
“I want to say how confident I am about achieving the objectives in 2007,” Streiff said at one presentation. In private he agreed that: “I have not achieved to convince people on the business model.”
It was less than a year ago that Streiff came to London and announced to a small room full of people that he had studied PSA from the inside and found the car market extremely complex. But the solutions for PSA were very simple.
In a year he has taken out cost, put in new people and processes in a way that has let a fresh sense of purpose into the company according to leading participants, and empowered the good guys in the overseas markets.
If there is one single thing that defines him it is the ability to absorb vast amounts of information and cut to the chase. The teams to transact the initiatives are all in place and the goals are set.