Automotive News Europe - March 2, 2009 - 5

March 2, 2009 www.autonewseurope.com · PAGE 5 PSA changes mid-term plan CEO says costs will be tightly controlled to save cash but projects are safe for now Lawrence J. Speer Automotive News Europe PARIS The dismal outlook facing the automotive sector has forced PSA/Peugeot-Citroen CEO Christian Streiff to scrap his medium-term volume and profitability objectives. Rather than shooting for 4 million new-car sales by 2010 and a 6 percent operating margin, Streiff says the French carmaker must focus instead on accelerating cost-cutting measures and preserving its cash. “We have to concentrate all our efforts on reducing inventory and minimizing our cash consumption,” Streiff said. In 2007, the European auto industry held a ¤30 billion net-cash position. But that position is expected to swing to a combined ¤42 billion of net debt by the end of 2010, Morgan Stanley predicts. PSA unveiled its new cash-protection strategy after a disappointing 2008, during which sales dropped 4.9 percent, to 3.26 million units, while revenue fell 7.4 percent, to ¤54.3 billion. The French carmaker lost ¤343 million last year, burned through ¤3.8 billion of cash, and expects worse to come in 2009. Facing a projected 20 percent sales drop in its key western European market, PSA is forecasting net losses and negative cash flow this year, before it breaks even again in 2010. Streiff says his new Cash 2009 program will put strict controls on spending this year to limit cash burn. Topping the list of his so-called “selfhelp measures” is a commitment to further reduce new-car inventories during the first half of the year. PSA cut production by 26 percent, or about 196,000 units, during the fourth quarter of 2008. CEO Streiff said he will not risk PSA’s future for short-term savings: “Sacrificing new product development would be an error.” Combined dealer and group inventories fell to 628,000 units at year-end, which was within comparable to the 604,000 units it had at the end of 2007. “Our objective is to finish 2009 with the same level of stock as at yearend 2007,” Streiff said. “We can’t jeopardize tomorrow’s success with cost cuts today.” PSA Executive Vice President of Programs Gregoire Olivier confirmed that the automaker still plans to: 1. Fit stop-start technology across its product lineup starting in 2010 2. Launch a new diesel-electric hybrid in 2011 3. Develop a new small, fuel-efficient engine. Olivier said PSA also will continue construction of a new factory in Kaluga, Russia, 180km southwest of Moscow. The plant is scheduled to start production in 2011. “We’re going to do all this by reducing costs, not by reducing the number of programs,” Olivier said. PSA reported ¤1.4 billion of cost savings during 2008 linked to Streiff ’s now-shelved Cap 2010 medium-term plan. Cost-cutting elements of the plan will accelerate during 2009, as PSA sheds about 11,000 workers – about 5.5 percent of its worldwide work force. The French automaker will also continue cutting purchasing costs and adjust its global production capacity by eliminating shifts and production lines as needed, Executive Vice President of Operations Roland Vardanega told Automotive News Europe. Vardanega heads PSA’s bid to implement Toyota-inspired lean manufacturing and engineering methods across the company. “We’re going to be doing more with less,” Vardanega said. “It’s really going to be a different way of ANE working.” Less cash for r&d A second part in the cash conservation project is a reduction in capital expenditure and r&d spending, which will fall to ¤3.5 billion during 2009 from ¤3.8 billion in 2008. The plan does not require PSA to cancel already planned product launches or slow r&d on future projects. “Sacrificing new product development would be an error,” Streiff said. Continental works to make ailing powertrain unit more competitive Bettina Mayer Automotive News Europe HANOVER, Germany Despite an investment of ¤500 million last year, Continental’s powertrain division is still trying to catch up with rivals such as Robert Bosch, Denso and Magna International. “We are not earning enough money with our technology,” a company source told Automotive News Europe. The source said that direct-injection systems produced by the company’s struggling powertrain division are too expensive compared with rivals. Suppliers that can provide innovative and inexpensive powertrain components are poised to win big as automakers race to find ways to meet tougher global emissions standards without sacrificing performance. Continental’s powertrain division develops and produces gasoline and diesel injection systems, engine management electronics, sensors and actuators as well as systems for hybrid and electric cars. Last year the division swung to an operating loss of ¤1 billion. (See chart) CEO Karl-Thomas Neumann said the unit probably will lose money again in 2009. “The financial results are a big frustration for me,” Neumann said while announcing the supplier’s re- Debt forces Conti closer to Schaeffler Klaus-Dieter Flörecke Automobilwoche HANOVER Wider losses at Continental’s powertrain division will aggravate problems at the Schaeffler Group, Conti’s highly indebted major shareholder. Schaeffler borrowed ¤16 billion to get control of Continental. Now it is having trouble paying back the debt. The company says it needs up to ¤6 billion in new financing. Continental is burdened with a net debt of ¤10.5 billion. As a result, the pressure to accelerate cooperation between the two firms is intensifying. “All options are being discussed” to boost synergies between their automotive divisions, said Karl-Thomas Neumann, Continental’s CEO. But it will be a few months before the companies have a plan that can be implemented completely. A joint team has been formed to move the process forward. There hasn’t been a decision on whether the solution the team is discussing will exclusively entail cooperation or will involve the integration of the two automotive units, Neumann said. “We don’t want to be part of the problem,” Neumann said, “but rather ANE the solution.” Growing loses The operating loss at Continental’s powertrain unit has widened 2008 2007 2006 Source: Company -1.05 billion -73.5 million -21.2 million Maschka joined Conti from Bosch. sults here last month. The division, which is based in Regensburg, Germany, inherited some customer projects from Siemens VDO Automotive that did not achieve Continental’s average profit margins, Neumann said. Continental purchased Siemens VDO for ¤11.4 billion in December 2007. A key reason Continental made one of the richest deal in the history of the supplier industry was to gain access to Siemens VDO’s powertrain expertise. Since the deal, the unit has been hit hard by the market downturn at the same time it fights through a longterm restructuring program. Neumann, who heads the division, is counting on a former Bosch electronic specialist for help. Axel Joachim Maschka arrived at Continental last April to lead the engine system unit, which accounted for more than half of the powertrain division’s ¤4.04 billion in sales last year. Maschka’s main tasks are to: Produce more in low-cost countries Cut jobs in the administration and engineering units Turn loss-generating customer projects into profitable ones. Maschka spent seven years at Bosch. His last job was business unit leader for auto electronics in India. Maschka replaced Jean-Marc Nozeran, who now heads Continental’s automotive business in France. Continental’s powertrain division is expected to play a key role in future joint projects with Conti’s largest shareholder, the Schaeffler Group. The Continental source said that on Friday (March 6) Neumann will present Conti’s supervisory board with a plan that shows how the two compaANE nies work closer together.

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Automotive News Europe - March 2, 2009

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