The European Auto Industry in 2012 declined again for the fifth consecutive year, with sales down by more than 8%. Every mass-market OEM has been struggling in the region, to the extent that the French government has offered guaranteed state loans to PSA Peugeot Citroën, which is under review by the European Commission.

Regional losses have been reported at many OEMs, including Fiat, Ford, GM and PSA Peugeot Citroën. The difference between the aforementioned OEMs and PSA Peugeot Citroën, however, is the exposure to the region, with the majority of PSA cars (some 62% in 2012) sold in Europe on the one hand, and limited international partnerships/alliances on the other, resulting in an overall operating loss to be reported by PSA in 2012.

PSA Group therefore, needs to consider many things, in order to make a return to profitability, such as:

• Cutting capacity and costs: closing plants and making redundancies. The company has announced a plant closure at Aulnay near Paris and other measures that will amount to 8,000 job losses.

• Expand the global footprint: selling more cars in emerging markets. The plan is to increase sales outside Europe from 38% of group sales in 2012 to at least 50% in 2015; the primary focus is Latin America, Russia, and China. The partnership with GM may allow further inroads to Russia/Latin America, where it is rumoured joint developments will take place, and they have their own growth trajectory plan to increase market share in China to 5%;

• Industry partnerships: leveraging partners in strategic growth markets, but also to generate cost savings in loss making Europe. The alliance announced with GM last year is starting to become clearer, and they are due to share three platforms in Europe (including the new Zafira/3008), and potentially expand the collaboration to international product development and purchasing. This alliance is set to result in a €1.5bn annual savings for GM/PSA combined;

• Shift to more profitable segments: PSA compete increasingly in lower (A and B) segments which are less profitable and more cost competitive. There is a focus to sell proportionately more cars in higher (C and D) segments, as well as crossovers such as the 2008 and 3008, and sports models such as the RCZ to increase profitability, as well as to attack new market segments to take market share.

Martyn Briggs is a London-based programme manager at Frost & Sullivan’s Automotive & Transportation Practice.