Peugeot Chief Seeks More Engine Deals With BMW & Ford

[Plex]

July 29 (Bloomberg) -- PSA Peugeot Citroen, Europe’s second-largest carmaker, is pursuing deeper engine cooperation with BMW and Ford Motor Co. in preference to a broader industry tie-up that might prove difficult to execute.

“Our priority is firstly to focus on our action plans and secondly to deepen when we can our existing cooperation on engines,” Chief Executive Officer Philippe Varin said today in a Bloomberg Television interview.

Peugeot and Ford already pool production of diesel engines across their light-vehicle ranges. The Paris-based carmaker’s cooperation with Bayerische Motoren Werke AG is limited to 1.4- and 1.6-liter gasoline engines for smaller models such as the Peugeot 207 and BMW Mini, leaving more potential for further savings.

Peugeot is open to broader alliances “if we remain independent and if they create value,” Varin said. “We have to be careful not to go for paper synergies. We want value we can really see.” He declined to say whether the company was already in talks on specific cooperation or alliance plans with other carmakers.

Varin, 56, was appointed in March to replace Christian Streiff, who had expressed reservations about sharing technology with rivals. Two months later, BMW chief Norbert Reithofer said the world’s biggest luxury carmaker may increase cooperation with Peugeot.

Consolidation Advocates

The Peugeot chief’s comments are bound to disappoint advocates of bolder consolidation, including London-based UBS analyst Philippe Houchois, who said the success of European No.1 Volkswagen AG is a lesson for rivals on the importance of scale.

“This just reinforces my fear that Varin doesn’t have a strong view of what needs to be done in the industry,” said Houchois, who recommends selling Peugeot shares and said it should concentrate on finding a merger partner.

“If that’s all he has to offer as a strategy, it’s not going to radically change Peugeot’s returns,” he said.

Peugeot rose 2.01 euros, or 11 percent, to 20.42 euros in Paris trading, the biggest increase since April 2. The stock has gained 68 percent this year, valuing the company at 4.78 billion euros ($6.7 billion).

Net Loss

The net loss was 962 million euros, or 4.24 euros a share, compared with a 733 million-euro profit, or 3.21 euros, a year earlier, the company said. Free cash flow reached 467 million euros as Peugeot reduced unsold vehicle stocks by 31 percent.

“Peugeot’s surprisingly strong cash performance will ease fears over a rights issue,” said David Arnold, an London-based analyst at Credit Suisse, which has an “outperform” recommendation on the stock.

Revenue fell 22 percent to 23.5 billion euros, the company said. The operating loss was 826 million euros, excluding one- time gains and losses, compared with a profit of 1.12 billion euros a year earlier. Peugeot predicted a 2009 operating loss of 1 billion euros to 2 billion euros and said it still expects negative cash flow for the full year.

Analysts had expected a 971.5 million-euro net loss on sales of 24.1 billion euros, according to the median of estimates compiled by Bloomberg.

Lower Volumes

While Europe pulled out of a 14-month slide in new-car registrations in June, help by billions in government-backed sales incentives, first-half volumes were 11 percent lower, according to the European Automobile Manufacturers’ Association.

Peugeot said it reduced its inventory to 431,000 unsold vehicles as of June 30, from 628,000 cars at the end of 2008.

“To achieve this, production was cut by 32 percent in the first half and by nearly 50 percent in the first quarter,” Chief Financial Officer Frederic de Saint-Geours told analysts at a briefing in Paris.

“PSA’s long-term challenges to improve its business remain, and current profits remain depressed,” Adam Jonas, an analyst at Morgan Stanley in London who recommends buying the shares, said in an e-mailed report. “But financial distress is evaporating rapidly.”

Bloomberg