The Peugeot Onyx Concept at the Paris Motor Show.
With Europe’s automotive crisis worsening, the French government has prepared a bailout plans for PSA Peugeot Citroen. The plan to aid Europe’s second largest automaker revolves around a government-backed refinancing deal for the company’s lending arm.
The deal is creating significant controversy among both the French public and within the Socialist government elected earlier this year, some members of the cabinet of President Francois Hollande threatening to walk out over the move.
“Banque PSA is now government-backed,” London-based Credit Suisse analyst David Arnold told Reuters. “It’s becoming increasingly obvious that selling assets won’t stem the cash outflow.”
Peugeot’s financial position has continued to deteriorate as car sales in western and southern Europe have collapsed, sending the maker’s stock to historic lows.
In return for the assistance, PSA agreed to appoint government and union board representatives, halt dividend payments and scrap stock options for its top executives, according to reports from Paris
Peugeot shares were down 6.5% at 5.45 euros as of early Wednesday morning, touching their lowest levels since 1986. The stock has plunged 48% this year, contrasting with a 20% gain by the Stoxx Europe 600 autos & parts index.
Peugeot is sticking to plans to scrap more than 10,000 jobs and a domestic plant to stem losses approaching 200 million euros a month, while developing future vehicles with General Motors to deliver more savings in five years’ time.
(Ford plans to close a plant in Genk, Belgium. Click Here for that story.)
The announcement, however, puts new strains on the General Motors alliance with the French automaker. GM purchased 7% of PSA shares in March in a deal that has been widely panned by independent analysts.
Reporting a 3.9% decline in third-quarter sales, PSA warned that net debt would rise to 3 billion euros by year end from 2.4 billion on June 30, as an asset sell-off fails to keep pace with losses.
The debt outlook also reflects dimmer prospects for 57.4% Peugeot-owned parts business with Faurecia, which cut its own full year earnings forecast on Monday.
“The competitive environment is getting tougher, with increased pricing pressure and ongoing deterioration in the markets of southern Europe,” Peugeot said.
Sales fell to 12.93 billion euros in the three months ended September 30 as revenue from the core carmaking division dropped 8.5 percent to 8.52 billion euros.
The automaker cut its full-year European outlook to predict a 9% market decline, worse than the 8% contraction forecast last month.
In talks with GM, PSA has settled on four joint vehicle programs, Peugeot said on Wednesday, outlining plans for joint development of two small cars, a compact crossover and a larger vehicle.
The refinancing deal will be “finalized in coming days” and comply with European Union rules, Chief Financial Officer Jean-Baptiste de Chatillon told reporters and analysts on Wednesday.
“It’s not state aid, it’s state support,” de Chatillon said, adding that Peugeot would pay for the state guarantee. “It’s priced at market values.”
In addition to the board appointments, French Prime Minister Jean-Marc Ayrault said Peugeot was expected to trim its planned job cuts in return for the aid.
“The government has no intention of handing out gifts like this without return commitments,” Ayrault said on France Inter radio.
Meanwhile, the German state of Lower Saxony, a major Volkswagen shareholder, has said it would oppose the Peugeot rescue plan as a possible violation of European Union regulations.