Alliances have been the name of the game for French automaker PSA Peugeot Citroen, and its recent wide-ranging deal with General Motors is likely to prove crucial to the company’s success in the coming years.

The scope of the alliance is still being defined. From an initial announcement centring on purchasing and platform-sharing, there now seem to be many more opportunities for the two companies to make savings. Clearly this is a very different deal to any previous PSA partnerships, for example with Toyota on small cars, with Ford on diesel engines and with Fiat on light commercial vehicles.

Indeed, the scope of the PSA-GM alliance could result in a significant reduction in some of these partnerships. It has already been announced that part of the LCV partnership, the Sevelnord plant at Valenciennes in northern France, will not be renewed after the current LCV model range completes its lifecycle. And it also appears there will be a scaling back of the PSA-Ford engine JV, with PSA likely to extend the GM alliance to include larger diesels of 2 litres and above.

A look at last year’s financial figures confirms why PSA is looking at the cost savings that an extended alliance would bring, as well as other cuts, including job reductions, the sale of non-core businesses, property sales and even possibly plant closures.

The 2011 figures showed a 48% drop in net profit to €588 million from €1.13 billion in 2010, largely due to losses at its core automotive division in the second half of the year. Peugeot's automotive division made an operating loss of €92m for the full year compared with a profit of €621m as a second half loss of €497m wiped out €405m first half profit.

“Deterioration in our business environment from the end of the first half led to very disappointing results from our automotive division. Other divisions — components division Faurecia, logistics company Gefco and Banque PSA Finance—made a positive contribution to our results,” said chief executive Philippe Varin.

Reduced dependence on Europe

PSA is still heavily reliant on Europe, which accounted for 58% of its total sales of 3.5 million Peugeot and Citroen vehicles in 2011. Rivals such as Volkswagen have a much more balanced global spread, with an established presence in North America and a stronger market share in key emerging markets. PSA’s target is to raise the share of deliveries outside Europe to 50% in 2015.

Peugeot is the larger of the two PSA brands in terms of sales, accounting for around 60% of the total. In 2011, Peugeot brand achieved 2.114m sales of cars and LCVs, 1.3% lower than the all-time record of 2.142m, set in 2010.

PSA’s overall sales decline was largely down to a reduction in European sales of 6.8%. On the other hand, PSA is improving its position in emerging markets, with sales up 11% in Latin America, 7.7% in China and 35% in Russia. In all these markets, Peugeot is driving the increased sales – in Latin America, Peugeot brand sales have grown 19% so far in the first four months of 2012 against 2011, and in Russia 40% over the same period. A new car, the 301, focused on emerging markets, will be launched to compete with the Dacia/Renault Logan family.

Emerging markets sales will again have to balance PSA’s declining European sales in 2012, as analysts expect the European market to contract by 5% this year, and PSA’s home market, France, could fall by as much as 10%. “In general, all countries have been affected, less so in the UK and Germany,” said a spokesman.

France and Western European countries remain the biggest markets for Peugeot-brand vehicles, with increasing sales in Belgium (+0.2% market share against 2011) and in the Netherlands (+2% market share on passenger vehicles). Europe will remain the number one market for Peugeot even if the company follows its globalisation strategy.

PSA also plans to raise €1.5bn from asset disposals this year, and will reduce in-house employment by 3,500 (with an additional 2,500 job cuts at suppliers), which will save a further €1bn.

Non-core disposals have already started. The sale of car rental company CITER has raised €440m, while property sales have netted a further €500m. PSA wants a further €500m for a controlling stake in profitable logistics arm Gefco – though PSA says it plans to retain strategic stake in the car transporter company.

Manufacturing strategy

PSA combined the manufacturing arms of Peugeot and Citroen into a single entity more than a decade ago – previously plants had built exclusively for one brand or another. Now vehicles are built for both brands on the same lines, using shared platforms. All factories carry PSA Peugeot Citroen branding.

Further back-office savings are envisioned. In the UK, for example, Citroen is abandoning its long-standing home in Slough, to the west of London, to move in to Peugeot’s new corporate head office in Coventry.

European manufacturing in concentrated in France and Spain. The UK assembly plant at Ryton, Coventry, was closed several years ago, though its capacity was replaced with a new factory in Trnava, Slovakia, which started producing the Peugeot 207 in 2006 and has now switched to the new 208. Citroen C3 Picasso is also built there.

Major PSA plants in France include the two former Peugeot factories in Alsace, Sochaux and Mulhouse, which have a combined capacity of more than 700,000 units. Sochaux produces Peugeot 308 saloon, SW and CC, plus 3008 and 5008 MPVs and Citroen DS5. Mulhouse builds Peugeot 308 hatch, as well as Citroen C4 and Citroen DS4.

Larger cars – Peugeot 508, RXH, 508 Hybrid4, and Citroen C5 and C6, are made at a former Citroen plant at Rennes in north-west France. Output in 2010 totalled 118,000 vehicles, while the Poissy plant received major investment to tool up for the new Peugeot 208.

The other major assembly plant in France is Aulnay, in Paris, which currently builds Citroen C3, though leaked documents suggest this plant is earmarked for closure in 2014. This would make sense, as PSA capacity utilisation across Europe is likely to fall to 75% this year, though is likely to be fought by French unions. C3 could be absorbed by other plants making cars off the same platform – such as Poissy, Trnava or Madrid in Spain.

Madrid is the smaller of two PSA plants in Spain, and it could itself be under threat. It builds around 125,000 Peugeot 207s a year, but it appears the new 208 will not be built there. In March, PSA said it had suspended indefinitely plans to build a new compact vehicle at Madrid following a meeting with union representatives.

Madrid is also a major engine plant, and that could be its long-term future. Vigo, the larger PSA Spain plant, builds MPVs and LCVs, mainly for Citroen (Grand C4 Picasso, C4 Picasso, and Berlingo) as well as Peugeot Partner vans. Combined output at Vigo was 397,000 vehicles in 2010.

Implications of GM alliance

Smaller plants such as Madrid and the 60,000-unit Mangualde factory in Portugal are likely to be threatened with closure as PSA and GM look to make savings. The two companies have already confirmed that they will co-operate on B- and D- segment cars as well as a crossover and MPV, and could expand their agreement to cover a small car for emerging markets as well as larger vehicles and transmissions.

Other projects postponed include the manufacturing of a dual clutch transmission at Valenciennes, France, while the recent announcement that Ford and PSA would reduce their co-operation on diesel engines means PSA and GM are likely to work together. PSA and Ford will in future independently develop and manufacture diesel engines of 2-litres and above. PSA is traditionally strong in diesel engines, while GM is not, and has relied on Fiat technology.

One rumour suggests the next-generation Citroen C5 will be built at an Opel plant, probably Russelsheim, using the next-generation Opel Insignia platform. Other rumours suggest the next-generation Opel Zafira Tourer could be built at a PSA plant, though this would not happen for some time as the Zafira Tourer is new.

Likewise, the next-generation Peugeot 208 and Opel Corsa could be built on a common platform – though again, the 208 has only just been launched and the Corsa is about to be renewed. So any major platform or plant-sharing is unlikely until a model completes its cycle.

International fleet sales

Fleet sales of the two brands are likely to be better co-ordinated in the future too. At the beginning of 2012, PSA Peugeot Citroen established a new entity, International B2B Sales, responsible for the fleet sector. This new umbrella company will bring together four groups: Peugeot Professional International, Citroen Business International, short term rental and TCO, and an LCV team.

International fleet sales development is being handled by Stéphane Chesnel, who is charged with coordinating the large fleet and key account operations of Peugeot and Citroen, while providing back office support for the separate sales brand-specific teams. There are two business development teams, one for Europe and the other focused on emerging markets.

Despite this administrative back-up, Peugeot and Citroen product management is being kept separate. Within the Peugeot fleet operation, international fleet business is handled by two sales entities: International Lease Sales and International Key Accounts Sales. Customer companies are each assigned a dedicated International Key Account Manager (IKAM) whose job is to address that organisation’s specific issues, from co-ordinating with the client’s leasers (at a national and international level) to advising them during fleet rationalisation projects.

Peugeot works with a total of 200 strategic international key accounts including Siemens, VINCI, Nokia Siemens, Veolia, Bayer, and many others, though the company says a key focus for the future is to work with smaller companies that operate internationally as well.

The current trend is to provide mobility offers which can suit fleet demands. This goes beyond a total cost of ownership (TCO) approach, covering fleet usage and a full service offering. An ‘eco consulting service’ is also offered to customer companies. This service was launched in 2011 and focuses on key areas such as CO2 measurement and reduction and eco driver training.

With regards to remarketing, short-term Fleet units are very carefully managed on a country-by-country basis to ensure residual values are protected. This is coordinated by a central International used vehicle operation.

Toyota JV

It also appears unlikely that small cars will be shared with GM, as PSA’s JV with Toyota, which has produced the Peugeot 107, Citroen C1 and Toyota Aygo at Kolin in the Czech Republic since 2002, looks likely to become closer.

PSA and Toyota are reportedly discussing joint production at the Sevelnord plant in northern France, in a move that would see Toyota replace Fiat as PSA’s partner at the plant. Fiat has already announced it will leave the partnership in 2017.

The Toyota alliance would make sense – Sevelnord is in Valenciennes, also home to Toyota’s Yaris factory, which means Toyota already has a strong supplier base in the area. The deal could see Toyota and PSA sharing panel vans and large MPVs built at Valenciennes. Toyota has recently discontinued its Hiace van and has not had a large MPV in Europe for several years since the end of Previa sales.

New model focus

With the recent launch of the 208 (pictured below), Peugeot is aiming to regain leadership in the compact B segment. The Peugeot 208 has been well received, and offers significantly low CO2 emissions starting from just 87g/km CO2.

Peugeot started making the 208 at its plant in Trnava, Slovakia, in November 2011. Output began at the company’s factory in Poissy, France, in January of this year and the subcompact also will be made at Peugeot's factory in Mulhouse, France, starting in October 2012. Peugeot 208 output should be close to 200,000 units in 2013 from the three plants, and it is expected to be the automaker's top-selling model in Europe once it reaches full production.

The ‘green’ image has been further enhanced by the launch in 2012 of three diesel-electric hybrid models using PSA’s HYbrid4 technology: 3008, 508 and 508 RXH. In the HYbrid4 system, the diesel drivetrain and the electric motors are not connected. Instead, the diesel drivetrain powers the front wheels, while the electric motor drives the rear wheels. So the car can run as a front-drive diesel, a rear-drive electric car or a hybrid all-wheel drive vehicle.

The big advantage is CO2 reduction. The Peugeot 508 Hybrid4 has a standard 2-litre diesel engine, but thanks to the electric element of the powertrain, its CO2 emissions are just 95g/km.

The renewal of the LCV range (restyled Peugeot Partner and Expert vehicles) is also intended to help Peugeot recover market share with small and medium-sized businesses.

Alliances have been the name of the game for French automaker PSA Peugeot Citroën, and its recent wide-ranging deal with General Motors is likely to prove crucial to the company’s success in the coming years.

The scope of the alliance is still being defined. From an initial announcement centring on purchasing and platform-sharing, there now seem to be many more opportunities for the two companies to make savings. Clearly this is a very different deal to any previous PSA partnerships, for example with Toyota on small cars, with Ford on diesel engines and with Fiat on light commercial vehicles.

Indeed, the scope of the PSA-GM alliance could result in a significant reduction in some of these partnerships. It has already been announced that part of the LCV partnership, the Sevelnord plant at Valenciennes in northern France, will not be renewed after the current LCV model range completes its lifecycle. And it also appears there will be a scaling back of the PSA-Ford engine JV, with PSA likely to extend the GM alliance to include larger diesels of 2 litres and above.

A look at last year’s financial figures confirms why PSA is looking at the cost savings that an extended alliance would bring, as well as other cuts, including job reductions, the sale of non-core businesses, property sales and even possibly plant closures.

The 2011 figures showed a 48% drop in net profit to €588 million from €1.13 billion in 2010, largely due to losses at its core automotive division in the second half of the year. Peugeot's automotive division made an operating loss of €92m for the full year compared with a profit of €621m as a second half loss of €497m wiped out €405m first half profit.

“Deterioration in our business environment from the end of the first half led to very disappointing results from our automotive division. Other divisions — components division Faurecia, logistics company Gefco and Banque PSA Finance—made a positive contribution to our results,” said chief executive Philippe Varin.

Reduced dependence on Europe

PSA is still heavily reliant on Europe, which accounted for 58% of its total sales of 3.5 million Peugeot and Citroën vehicles in 2011. Rivals such as Volkswagen have a much more balanced global spread, with an established presence in North America and a stronger market share in key emerging markets. PSA’s target is to raise the share of deliveries outside Europe to 50% in 2015.

Peugeot is the larger of the two PSA brands in terms of sales, accounting for around 60% of the total. In 2011, Peugeot brand achieved 2.114m sales of cars and LCVs, 1.3% lower than the all-time record of 2.142m, set in 2010.

PSA’s overall sales decline was largely down to a reduction in European sales of 6.8%. On the other hand, PSA is improving its position in emerging markets, with sales up 11% in Latin America, 7.7% in China and 35% in Russia. In all these markets, Peugeot is driving the increased sales – in Latin America, Peugeot brand sales have grown 19% so far in the first four months of 2012 against 2011, and in Russia 40% over the same period. A new car, the 301, focused on emerging markets, will be launched to compete with the Dacia/Renault Logan family.

Emerging markets sales will again have to balance PSA’s declining European sales in 2012, as analysts expect the European market to contract by 5% this year, and PSA’s home market, France, could fall by as much as 10%. “In general, all countries have been affected, less so in the UK and Germany,” said a spokesman.

France and Western European countries remain the biggest markets for Peugeot-brand vehicles, with increasing sales in Belgium (+0.2% market share against 2011) and in the Netherlands (+2% market share on passenger vehicles). Europe will remain the number one market for Peugeot even if the company follows its globalisation strategy.

PSA also plans to raise €1.5bn from asset disposals this year, and will reduce in-house employment by 3,500 (with an additional 2,500 job cuts at suppliers), which will save a further €1bn.

Non-core disposals have already started. The sale of car rental company CITER has raised €440m, while property sales have netted a further €500m. PSA wants a further €500m for a controlling stake in profitable logistics arm Gefco – though PSA says it plans to retain strategic stake in the car transporter company.

Manufacturing strategy

PSA combined the manufacturing arms of Peugeot and Citroën into a single entity more than a decade ago – previously plants had built exclusively for one brand or another. Now vehicles are built for both brands on the same lines, using shared platforms. All factories carry PSA Peugeot Citroën branding.

Further back-office savings are envisioned. In the UK, for example, Citroën is abandoning its long-standing home in Slough, to the west of London, to move in to Peugeot’s new corporate head office in Coventry.

European manufacturing in concentrated in France and Spain. The UK assembly plant at Ryton, Coventry, was closed several years ago, though its capacity was replaced with a new factory in Trnava, Slovakia, which started producing the Peugeot 207 in 2006 and has now switched to the new 208. Citroën C3 Picasso is also built there.

Major PSA plants in France include the two former Peugeot factories in Alsace, Sochaux and Mulhouse, which have a combined capacity of more than 700,000 units. Sochaux produces Peugeot 308 saloon, SW and CC, plus 3008 and 5008 MPVs and Citroën DS5. Mulhouse builds Peugeot 308 hatch, as well as Citroën C4 and Citroën DS4.

Larger cars – Peugeot 508, RXH, 508 Hybrid4, and Citroën C5 and C6, are made at a former Citroën plant at Rennes in north-west France. Output in 2010 totalled 118,000 vehicles, while the Poissy plant received major investment to tool up for the new Peugeot 208.

The other major assembly plant in France is Aulnay, in Paris, which currently builds Citroën C3, though leaked documents suggest this plant is earmarked for closure in 2014. This would make sense, as PSA capacity utilisation across Europe is likely to fall to 75% this year, though is likely to be fought by French unions. C3 could be absorbed by other plants making cars off the same platform – such as Poissy, Trnava or Madrid in Spain.

Madrid is the smaller of two PSA plants in Spain, and it could itself be under threat. It builds around 125,000 Peugeot 207s a year, but it appears the new 208 will not be built there. In March, PSA said it had suspended indefinitely plans to build a new compact vehicle at Madrid following a meeting with union representatives.

Madrid is also a major engine plant, and that could be its long-term future. Vigo, the larger PSA Spain plant, builds MPVs and LCVs, mainly for Citroën (Grand C4 Picasso, C4 Picasso, and Berlingo) as well as Peugeot Partner vans. Combined output at Vigo was 397,000 vehicles in 2010.

Implications of GM alliance

Smaller plants such as Madrid and the 60,000-unit Mangualde factory in Portugal are likely to be threatened with closure as PSA and GM look to make savings. The two companies have already confirmed that they will co-operate on B- and D- segment cars as well as a crossover and MPV, and could expand their agreement to cover a small car for emerging markets as well as larger vehicles and transmissions.

Other projects postponed include the manufacturing of a dual clutch transmission at Valenciennes, France, while the recent announcement that Ford and PSA would reduce their co-operation on diesel engines means PSA and GM are likely to work together. PSA and Ford will in future independently develop and manufacture diesel engines of 2-litres and above. PSA is traditionally strong in diesel engines, while GM is not, and has relied on Fiat technology.

One rumour suggests the next-generation Citroën C5 will be built at an Opel plant, probably Russelsheim, using the next-generation Opel Insignia platform. Other rumours suggest the next-generation Opel Zafira Tourer could be built at a PSA plant, though this would not happen for some time as the Zafira Tourer is new.

Likewise, the next-generation Peugeot 208 and Opel Corsa could be built on a common platform – though again, the 208 has only just been launched and the Corsa is about to be renewed. So any major platform or plant-sharing is unlikely until a model completes its cycle.

International fleet sales

Fleet sales of the two brands are likely to be better co-ordinated in the future too. At the beginning of 2012, PSA Peugeot Citroën established a new entity, International B2B Sales, responsible for the fleet sector. This new umbrella company will bring together four groups: Peugeot Professional International, Citroën Business International, short term rental and TCO, and an LCV team.

International fleet sales development is being handled by Stéphane Chesnel, who is charged with coordinating the large fleet and key account operations of Peugeot and Citroën, while providing back office support for the separate sales brand-specific teams. There are two business development teams, one for Europe and the other focused on emerging markets.

Despite this administrative back-up, Peugeot and Citroën product management is being kept separate. Within the Peugeot fleet operation, international fleet business is handled by two sales entities: International Lease Sales and International Key Accounts Sales. Customer companies are each assigned a dedicated International Key Account Manager (IKAM) whose job is to address that organisation’s specific issues, from co-ordinating with the client’s leasers (at a national and international level) to advising them during fleet rationalisation projects.

Peugeot works with a total of 200 strategic international key accounts including Siemens, VINCI, Nokia Siemens, Veolia, Bayer, and many others, though the company says a key focus for the future is to work with smaller companies that operate internationally as well.

The current trend is to provide mobility offers which can suit fleet demands. This goes beyond a total cost of ownership (TCO) approach, covering fleet usage and a full service offering. An ‘eco consulting service’ is also offered to customer companies. This service was launched in 2011 and focuses on key areas such as CO2 measurement and reduction and eco driver training.

With regards to remarketing, short-term Fleet units are very carefully managed on a country-by-country basis to ensure residual values are protected. This is coordinated by a central International used vehicle operation.

Toyota JV

It also appears unlikely that small cars will be shared with GM, as PSA’s JV with Toyota, which has produced the Peugeot 107, Citroën C1 and Toyota Aygo at Kolin in the Czech Republic since 2002, looks likely to become closer.

PSA and Toyota are reportedly discussing joint production at the Sevelnord plant in northern France, in a move that would see Toyota replace Fiat as PSA’s partner at the plant. Fiat has already announced it will leave the partnership in 2017.

The Toyota alliance would make sense – Sevelnord is in Valenciennes, also home to Toyota’s Yaris factory, which means Toyota already has a strong supplier base in the area. The deal could see Toyota and PSA sharing panel vans and large MPVs built at Valenciennes. Toyota has recently discontinued its Hiace van and has not had a large MPV in Europe for several years since the end of Previa sales.

New model focus

With the recent launch of the 208 (pictured below), Peugeot is aiming to regain leadership in the compact B segment. The Peugeot 208 has been well received, and offers significantly low CO2 emissions starting from just 87g/km CO2.

Peugeot started making the 208 at its plant in Trnava, Slovakia, in November 2011. Output began at the company’s factory in Poissy, France, in January of this year and the subcompact also will be made at Peugeot's factory in Mulhouse, France, starting in October 2012. Peugeot 208 output should be close to 200,000 units in 2013 from the three plants, and it is expected to be the automaker's top-selling model in Europe once it reaches full production.

The ‘green’ image has been further enhanced by the launch in 2012 of three diesel-electric hybrid models using PSA’s HYbrid4 technology: 3008, 508 and 508 RXH. In the HYbrid4 system, the diesel drivetrain and the electric motors are not connected. Instead, the diesel drivetrain powers the front wheels, while the electric motor drives the rear wheels. So the car can run as a front-drive diesel, a rear-drive electric car or a hybrid all-wheel drive vehicle.

The big advantage is CO2 reduction. The Peugeot 508 Hybrid4 has a standard 2-litre diesel engine, but thanks to the electric element of the powertrain, its CO2 emissions are just 95g/km.

The renewal of the LCV range (restyled Peugeot Partner and Expert vehicles) is also intended to help Peugeot recover market share with small and medium-sized businesses.