Peugeot maker sees shrinking Europe market after good 2019

PARIS: Peugeot maker PSA Group has turned more pessimistic about the outlook for the car industry this year, predicting a decline in the European and Russian auto markets following record results in 2019.

The French manufacturer that’s working to combine with Fiat Chrysler Automobiles NV sees the European car market shrinking 3% in 2020 and Russia declining 2%, according to a statement Wednesday.

PSA’s outlook adds to a souring of the global car industry in recent weeks.

This is especially so with China grappling to contain the coronavirus epidemic that has shuttered factories and hobbled distribution chains spanning continents.

The company depends heavily on Europe for its sales, which fell 10% globally to 3.5 million vehicles last year.

PSA’s profit margin widened to 8.5%, as the company that also makes Citroen cars lowered costs and sold more expensive models.

The 2019 adjusted operating income rose a better-than-expected 11% to 6.32 billion euros (US$6.87bil).

Since arriving in 2014, CEO and chairman Carlos Tavares has turned around the manufacturer.

He achieved this by focusing relentlessly on cutting out overheads and adding scale.

It kept a target for the 2019-2021 average automotive adjusted operating margin of more than 4.5%.

This is a level chief financial officer Philippe de Rovira called a “floor” and very conservative.

“Our internal target is always to improve performance, so let’s not be misled by this indicator, ” he said on a call with reporters.

In the past, the margin had been boosted by excluding restructuring charges from operating profit, Bloomberg Intelligence analysts have said.

The company has reported charges for cost cutting at Opel and Vauxhall, but also Peugeot, Citroen and DS.

Last month, it unveiled job reductions at Opel.

Other European carmakers have so far signaled a mixed year at best.

While Daimler AG has forecast an earnings rebound following several profit warnings and a dividend cut, it has also warned of more possible regulatory costs in coming months and “significant adverse effects” from the virus outbreak in China.

German luxury-car rival BMW AG is sticking to its sales growth target for China, even as it acknowledged uncertainty about when the situation will return to normal. PSA’s French rival, Renault SA, earlier this month posted its first annual loss in a decade and indicated operating margins are set to shrink. PSA proposes to pay a dividend of 1.23 euros a share.

The group adjusted operating income of 6.32 billion euros beat an average forecast of 6.14 billion euros of analysts surveyed by Bloomberg. — Bloomberg

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