Cost Cutting Measures Have an Impact

In an impressive upturn Bloomberg reports that Peugeot Citroen has posted an annual profit in 2014 of 905 million euros after extensive measures to curb signifcant losses. In 2012 the ailing motor company reported a loss of 5 billion euros in what had been the worst losses recorded in a single year by the company.  Industry insiders still report the company is not out of the woods yet, says Kristina Church, a London-based analyst for Barclays Plc, “they need to generate some profit from here; it’s great that they’re generating some cash, but they need to start showing that cash is sustainable.”

Among the measures implemented by PSA Peugeot Citroen to curb the losses were – slashing costs by closing a plant, cutting jobs and reducing spending on new car models. Overall revenue edged up 1 percent in 2014 to 53.6 billion euros. The company also sought to “better position its three brands”, including the new luxury DS nameplate, and restructured, in regions such as Russia and Latin America.

“Even though we’re seeing an improvement of our financials in Russia and Latin America, these geographical zones remain in the red,” Chief Financial Officer Jean-Baptiste de Chatillon told reporters in a conference call. “Pressure on foreign exchange rates was strong in 2014 and should remain strong this year in these two zones.”

Among other cost-cutting measures, Peugeot plans to move its headquarters to the Paris suburb of Rueil-Malmaison by 2017. It also decided to sell a majority stake of its unprofitable scooters unit to Mahindra & Mahindra Ltd., shuttered a car plant in the Paris suburb of Aulnay and signed a three-year agreement with French unions in October 2013 to freeze pay and make work hours more flexible for remaining employees.The company plans to further lower wage costs to 12 percent of revenue in 2016 from 13.4 percent last year, under new accounting rules. In return for concessions, Peugeot agreed to refrain from large-scale firings and pledged to produce 1 million vehicles in France in 2016 and keep its factories in the country open until then.

(Reproduced: Bloomberg Business)