Price War Halves Peugeot Citroen Profits

The company reported its net attributable profit fell to FFr602 million ($117.2 million) in the first half of the year from FFr1.22 billion, and its operating margin shrank to FFr1.34 billion from FFr2.78 billion.

Its stock fell 1.7 per cent to FFr573 in midday trading on Monday on the bourse, although the profit fall came as no surprise.

Peugeot's French rival, Renault SA, earlier this month reported a huge drop in first-half profit to FFr158 million from FFr1.76 billion and predicted a loss for the year.

French carmakers are struggling in a tough environment as their home market has turned into the biggest battleground of a fierce price war among European and US manufacturers.

 

Foreign carmakers are attracted by the rapid growth of French car sales, buoyed by a state new-cars-for-old incentive scheme, and the high cost structure of the French companies.

Car sales in France rose 7.4 per cent in the first eight months of the year, but foreigners took the lion's share of the increase, registering a combined 20 per cent sales gain.

Foreigners have become very aggressive. For them France is a foreign market and they can even afford to lose money here because for them it's a strategic issue, said a car analyst at a French brokerage house.

Foreign companies, notably Italy's Fiat, have benefited from the French incentive scheme, which has tended to favour sales of smaller cars with smaller profit margins.

PSA Peugeot Citroen said in a statement that its first-half performance was also hurt by the franc's strength relative to other currencies such as the Italian lira and British pound.

In this context, PSA Peugeot Citroen sought the best balance between unit margins and volumes, in a bid to maintain market share while limiting the erosion of its profitare not put in place.