Bleeding for a Future

I’ve mentioned it a couple of times in earlier blogs; there’s a significant over-capacity in the European automotive industry and that can only last for so long.

Well, it seems the moment of “so long” has finally come for a whole bunch of Frenchies working at PSA, the company that’s responsible for Peugeot and Citroen. And by “a whole bunch” I really do mean a lot of them! Where in November PSA was still speaking of potentially ‘releasing’ 6,000 people, that number has now grown to 10,000, exactly a tenth of all of the company’s French personnel.

That PSA is bleeding shall be clear. At the end of 2012 they had a total of 209,019 people working for them globally. Of those 100,356 worked in France. Together all these people produced a lot of cars of which over 3.5 million were sold in 2011, about fifty thousand fewer than in 2010. Thinking “that doesn’t look so bad!”? Well, profit on PSA’s automotive sales went down from €621 million in 2010 to minus €92 million in 2011. That’s well in the red.

But it doesn’t end there: sales figures are still declining this year compared to 2011. To cope with all this negativity, PSA Peugeot-Citroen has set itself to the task of realising approximately a billion euros in savings this year, of which the people reduction is a significant part. Sounds necessary and I’m confident it is.

But there’s one thing bugging me about this; the fact that nobody’s talking about finding a new equilibrium. See, carmakers shouldn’t think they’re dealing with a temporary dip in European demand. In Europe this thing will be permanent or at the very least a reality for a long time to come. Cars are lasting longer as a result of improved quality and higher road safety, and consumers are now preferring small – and so cheap! – cars over big ones. Ergo, European margins just aren’t so big anymore.

Europe will still be a major market for the global car industry, but just not as big as it used to be. It’s time for many European manufacturers – though the German premium brands are apparently exempt – to adapt to this new reality.

I’m convinced the first one to do it quick, thorough and relentless will emerge as the winner, whereas those that forsake to move may slowly bleed to death.

One thought on “Bleeding for a Future

  1. Pingback: Recession? What recession?

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