Careful driver

Peugeot's Tavares might be the anti-Marchionne

Peugeot Citroen's Chief Executive Carlos Tavares has disappointed investors with conservative profit and growth targets until 2018. In that sense, he looks like the opposite of ever-bullish Fiat Chrysler boss Sergio Marchionne. Both are making progress in turning around stricken mass-market carmakers with a terrible track record, and both are heading in a good direction. Tavares is just less likely than his rival to end up eating his words.

The French carmaker's shares fell six per cent in early trading on April 5 after what is probably just realism. For Peugeot's core automotive division, Tavares is eyeing an average automotive operating margin of four per cent excluding one-offs between 2016 and 2018. That's one percentage point below last year's performance. No such modesty at Fiat, which published its medium-term targets in late January. Marchionne wants adjusted operating profit to rise from last year's 4.7 per cent of sales to as much as 7.2 per cent.

Peugeot's investors should not punish Tavares for driving carefully. His targets are more ambitious than meets the eye. About a third of the group's strong performance in 2015 owes to factors beyond management's control like foreign exchange tailwinds. It is prudent not to base medium-term plans on them. And compared to Peugeot's long-term track record, a recurrent four per cent operating margin is four times the group's 15-year average.

Fiat has more exposure to the US car market. Peugeot doesn't sell vehicles there, even though the United States is the world's second-largest market behind China. But Marchionne has tasted humble pie before. In January, he shelved grandiose plans to turn Alfa Romeo into a premium brand at par with German rivals. His claim that spun-off brand Ferrari would trade like a luxury company doesn't sit well with the 25 per cent fall in Ferrari's stock since listing in October.

Investors in Peugeot face a lower probability of unpleasant surprises, which limits the stock's downside ride. At the moment, the group is valued at 8.7 times the next 12 months earnings, compared to Fiat Chrysler's 4.9 times, Eikon data shows.

Tavares' low-key approach is less entertaining than Marchionne's, but also more credible.