Strong euro squeezes Peugeot

Wall Street Journal - May 24, 2007

A turnaround plan unveiled by PSA Peugeot Citroen underscores the
challenges faced by Europe's auto industry: High-growth markets are
located beyond the Continent's borders, but the strength of the euro
against other leading currencies makes it difficult to use European
plants to conquer overseas customers.

Peugeot, Europe's second-largest car maker by sales, said yesterday
that it will slash costs, shed 4,800 jobs in France and speed up model
launches to restore sagging profitability. At the same time, Peugeot
said it will decide by the summer on building its first production
facility in Russia to take advantage of a fast-expanding market.

"The situation is critical; our automobile division is very close to
break-even, which is why it's so urgent to return to sales growth and
improve profitability," Peugeot Chief Executive Christian Streiff told
shareholders at the company's annual meeting.

Mr. Streiff added his voice to a chorus of angry European industry
executives, saying that the strength of the euro against the dollar and
the yen is a "terrible handicap" for European car makers. "It opens the
door to competition, and has given Japanese manufacturers an absolutely
phenomenal competitive advantage," he said.

Other European car makers, such as Volkswagen AG, and European plane
maker Airbus, a unit of European Aeronautic Defence & Space Co., have
said the euro's strength is forcing them to source more parts outside
the 13 countries that share the euro, and sometimes to relocate
production outside the euro area.

Peugeot's fortunes have ebbed in recent years as a weak product lineup
and fierce competition from Asian manufacturers have caused its share
of the European market to ebb to just more than 13% from a high of
15.5% in 2002. The turnaround program, dubbed CAP 2010, aims to regain
that market share, Mr. Streiff said.

Peugeot's net profit slid to 176 million euros ($236.7 million) in 2006
from 1.03 billion euros a year earlier, while the operating-profit
margin of its automobile unit fell to 0.6% from 2% in 2005.

In Paris, Peugeot shares fell 4.6% to 58.47 euros in a broadly higher
market.

Mr. Streiff said the recovery plan aims to reduce the company's fixed
costs by 30% by speeding up the development time for new models and
generally tightening up operations not directly related to production.