PSA Group on track with U.S. plans

November 19, 2018 06:01 CET

When Carlos Tavares joined PSA Group nearly five years ago, the French automaker stood out among European rivals for its lack of any significant ties to the U.S.

But last year, the maker of Peugeot, Citroen and DS automobiles announced plans to return to the U.S. through the newly created PSA North America. PSA also bought General Motors’ Opel and Vauxhall. Tavares has since lifted those European brands to profit after nearly two decades of losses, relying on much the same playbook that he used to rescue PSA from the brink of bankruptcy after becoming CEO in 2014.

Tavares, 60, the former head of Nissan North America, is now leading the charge to profitable growth and industry-leading efficiency under a plan called Push to Pass. He spoke at the Paris auto show in October with Jason Stein and Dave Versical of Automotive News and Luca Ciferri and Peter Sigal of Automotive News Europe.

Q: Where is PSA in its plan to sell cars in America again by 2026?

A: We are on time with our push to America. First, we are now implementing a certain number of operations for our mobility services. For our Free2Move mobility service plan, which is now ongoing, it is important for us to get closer to U.S. consumers so that we can understand their behaviors and expectations, so that we can come up with solutions that will make them happy.

We have three major ongoing things for our strategic preparation of everything related to cars: First is to finalize the product planning and brand choice that we will bring to the U.S. Second is to finalize the distribution model that we will use for sales and marketing. And third is about how we want to organize sourcing, in terms of both parts and final assembly.

From spring 2019, I think our strategy will be set, decided, and from there, we will start implementing everything.

Peugeot pulled out of the U.S. in 1991. PSA North America CEO Larry Dominique has said that when you step in again, you step in now for good.

Absolutely. We want to step in, and we don’t want to step out anymore. We understand that gaining the trust of the U.S. consumers means staying, working, understanding, correcting and improving continuously.

This is very important to us and why the comeback to the U.S. will be staged because we don’t want to immediately put ourselves in a position where we make red ink. We want to avoid that. For us, the best way to avoid that is to go in step by step, staging the presence and the investments so that we never fall in the red and so we don’t have to ask ourselves if we need to step out. We want to step in and stay.

What could that mean for American car dealers?

I think it’s good for them. It means that we are going to continuously invest at accumulating awareness and a positive opinion about our products and technology. We put ourselves in a long-term investment mindset. This is not a “one-shot,” where we want to have the headlines, and then things go south. We want to make this a very professional and rigorous step-by-step process. We don’t want to go overboard. We just want to make professional work and make our United States customers happy. When we said the Push to Pass plan will take 10 years, we meant it. We are not in a hurry or rushing. We are just trying to move forward and move things right.

Give us a progress report on PSA’s purchase of Opel from General Motors.

So far, it has been working quite well. The turnaround plan has been implemented with a high level of rigor under the strong leadership of Michael Lohscheller, the Opel CEO. We have seen very good results on the first half of 2018. We were able to deliver €500 million ($566 million) of recurring operating income. And also 5 percent profit margin after 20 years of red ink. So, I think it is the right moment to congratulate the Opel teams and the Opel people.

They’ve done a great job. But this is just the beginning. We need to stay very focused and be persistent in the way we continue to implement all the actions of this plan, which, of course, is related to reducing the fixed costs, reducing the variable costs and improving the net revenue per unit by managing the sales mix in the proper way.

PSA’s electrification strategy is very clear: plug-in hybrids on midsize and large cars and full electric on smaller cars. How will you persuade people to buy plug-in hybrids?

I’ve been repeating like a broken record that sustainable and clean mobility is like organic food: It’s more expensive. But when we bring the plug-in hybrids, we also bring the best of two worlds to protect buyers’ freedom of movement.

First, we have the power — we are presenting here in Paris the DS 7 Crossback E-Tense four-wheel-drive version with 300 hp — so in terms of acceleration and driveability, it’s absolutely outstanding. Then you have the range; it’s beyond 500 kilometers (311 miles) of range on the highway. And, of course, you have the zero-emission capability for 50 kilometers (31 miles). We have put a specific blue light on the mirror so that from outside, you can see that the car is in pure EV mode.

It’s really a fantastic mobility device, but it’s more costly. And it’s 10 to 15,000 euros ($11,300 to $17,000) more costly than a conventional internal-combustion engine. It’s the price to pay for this comfort and this convenience.

How are your brands doing in France?

On the Peugeot, Citroen, DS side, we were blessed in the first half of 2018 with an 8.5 percent operating margin, which is better than most German premium carmakers. That is very surprising for a company that was near bankruptcy five years ago.

Is this just a matter of cost cutting?

We are fighting like hell for efficiency and effectiveness every day.

Look at this motor show. In 2014, we spent twice the amount we are spending today. Do you have the feeling that our booth is cheap? That it’s low value, low quality?

It’s just about being frugal and being thoughtful in the way we spend the money and challenge each expense. At the end of the day, it protects the motor show as a marketing tool because the return is much better, given the number of orders that we can get through the show.

What do you mean by frugal?

Less press conferences, which are boring. Right? Press conference: Eight minutes for the ego of the executives. More chats like this one. More roundtables. Of course, challenge every expense, the catering. The [display] areas are smaller, but we are using them in a more efficient way.

Describe your auto show planning process.

The three brands here come to see me every time they go to a motor show. Because the reference position is, we don’t go. So if you want to go, you need to explain that it makes sense to go. And then they explain what is the return on investment.

And they tell me what is the objective of orders that you are setting for the salespeople in the booth. And then you report back and tell me, did you meet your objective or not?

What’s the future of big auto shows?

In “motor show,” there is a word called “show.” You cannot have a sustainable motor show in a place where people do not love cars.

If you are in a place, a country, a city, a region that does not love cars, don’t expect the motor show to survive. You need to demonstrate your passion and your love for automobiles.

Who comes to the Paris show?

Most of the people coming here are from rural areas, much more than urban areas. But if you are not in a place that loves cars, there is going to be erosion at one point in time until it collapses.

Elaborate on auto shows and investment returns.

It needs to make sense from a return perspective because it is a marketing tool. A motor show is a marketing tool as much as a motorsports program, as much as an advertisement on TV, as much as a social media campaign, as much as an advertisement in a newspaper.

So at the end of the day, if you want to protect the competitiveness of the motor show as a marketing tool, in competition with other marketing tools within the overall budget of the fixed marketing expense of the brand CEO, you need to improve the ROI.

For that, you need to improve the top line, orders during the show, less cost. And if you do that, you are not playing against the motor show; you are playing in favor of the motor show because you are protecting the return of the motor show as a marketing tool in competition with other kinds of communications.

You have a 1966 Porsche 912 in your garage.

Yes. It’s one of my cars, but not the only one. I have a few other small, sporty cars like a Renault Alpine and a Simca Rallye 2 from when I was a youngster, of course. Those are the cars I love to have today and drive from time to time.

Jason Stein, Dave Versical, Luca Ciferri and Peter Sigal contributed to this report

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