It is not a secret that the global motor industry has been seriously affected by the 2nd wave of the global economic crisis. Amid global uncertainty, more and more investors think about withdrawing their investments from one sector to reinvest them in another one. Can the French automobile industry be considered attractive for investments?
Alas, French cars like Renault, Peugeot or Citroen are not in such demand around the world as, for example, German or Japanese cars.
They are often said to be costly-to-service and not so reliable. They say, used French cars are relatively difficult to sell. It is often said that French car manufacturers like to make cars their own style. They do not like to adapt to the rest of the world, thus showing their uniqueness.
Some male car owners assume that French cars are for female drivers because of nice-looking design and catchy names. Some skeptics go as far as mocking at French car manufacturers by saying that French cars are not even popular with carjackers.
Nevertheless, France is Europe’s 2nd biggest car-manufacturing country.
French car brands are some of the world’s oldest and popular. For example, Peugeot has been manufacturing automobiles for over 120 years.
Not so long ago Renault used to account for 5% of the global motor industry, Peugeot and Citroen – 4%. Peugeot is Europe’s 4th car brand.
French has always manufactured nice-looking cars with original design. Of course, these days many car manufacturers can boast their fast, comfortable, luxurious, economical and reasonably-priced cars. However, only French car manufacturers can perfectly combine all these features.
As for various ratings, Citroen DS5 is among the nominees for Car of the Year 2012. Renault Sandero/Sandero Stepway are especially popular in Russia.
So, maybe it is time to change our attitude towards French cars?
Sales Volume
Sales volume is a major factor when considering a company’s stock.
PSA Peugeot Citroen is France’s number 1 and Europe’s second largest car manufacturer. It accounts for 18,8% of the European car market. It employs over 186K people.
The company’s total sales shrunk by 1.5% down to 3.5M cars in 2011. However, the sales boosted in Latin America (+10,6%), China (+7,6%) and Russia (+34,8%). The total sales outside Europe increased from 39% up to 42%.
Peugeot. Over 2.1M cars were sold in 2011. Peugeot came close to its sales record set in 2010 (2,142M cars). The sales outside Europe increased by 3% up to 48%.
Citroen. Over 1.4M cars were sold last year (-1,65%). However, the company increased its sales volume outside Europe by 3% up to 33%. Last year was successful for Citroen in the Russian market. (+59% mainly due to Citroen C4). By the way, Citroen was the only car brand to show a sales increase in the domestic market last year.
Renault SA. It remains a major European car manufacturer (8,6% of the European market). It has offices in 118 countries and employs over 122K people.
Over 2,7M cars were sold around the world in 2011 (+3,6%). However, the sales dropped by 5.7% in Europe. The domestic decline was especially considerable (-13,8%). The sales increased outside Europe (+19,2%). Again, Russia was the major buyer (+60%).
Financial Performance
PSA Peugeot Citroen. The company’s financial performance deteriorated in 2011:
· The net income collapsed almost by half: 48,2%, from €1,13B down to €588M.
· The income per share declined from €5 down to €2,65 per share.
· The proceeds increased by 6,9% up to roughly €60B against €56,6B a year before.
Due to such poor performance, the company’s management decided to sell some of its assets to the amount of €1,5B.
The chart below reflects the performance of Peugeot SA’s stock (ADR). According to the experts of , the price is currently fluctuating inside the 15,00-21,58 range. Once the price breaks the top of the range, it will form a bullish FZR of Daily/Weekly and may rally up to 25,47. Once the price breaks the bottom of the range, it will start forming wave C of a bigger-scale wave level.
Renault SA.
· The net income declined by 439%, from €3.49B down to €2.14B.
· The proceeds increased by 9,4% up to €42,63.
· The company is expected to pay dividends equal to €1.16 per share.
Renault SA’s stock is forming a major upswing - wave C of Daily/Weekly, the experts of report. The closest major level of resistance is the MF pivot 41,585. A trend reversal can be considered only after the price breaks below the MF pivot and sloping channel (as shown below):
More Problems For French Car Manufacturers?
According to the expert team of , the mentioned French car manufacturers will see further difficulties in 2012 due to numerous factors.
In order to avoid pitfalls, investors should pay attention to the following “weak spots”:
French cars are said to be unreliable. For example, according to Germany’s examination-of-motor-vehicles report (TUV-2011), Toyota has 3% defects per 100 cars while Peugeot has 11% per 100 cars. The major concern is electronics, especially with Peugeot. French cars are packed with sensible and vulnerable electronics, which crash in tough conditions.
Costly maintenance. It is so costly and complicated that not so long ago US servicing depot had signboards saying that they repair all cars except Renault, Peugeot and Citroen. The thing is sometimes it requires dismantling half a car in order to eliminate a simple breakdown.
Pricing. For example, a standard Peugeot 508 costs €26k in Europe while its GT version costs €38K or more. These days you can buy a better car at a lower price. Take, for example, Korean or Japanese cars (also read Tips For Investors: Japanese Car Brands. Frontrunners Or Outsiders?)
What are the major reasons for the financial misfortunes and production failures of French car manufacturers?
The instability of the European and domestic market. It is obvious that the eurozone crisis has affected the EU’s overall consumer demand, including the demand for cars. French car manufacturers mainly rely on European consumers.
France’s car manufacturing monopoly. Renault, Peugeot and Citroen accounts for 90% of the country’s motor industry. This made them take their hair down.
Tough rivalry in the industry. Europe is currently seeing excessive production capacities in the market of low-priced autos.
French cars are costlier than those assembled in Eastern Europe (Belarus, Ukraine, Poland, Moldova, Czech Republic) due to a number of factors, including higher expenses on labor power, raw materials and heavier taxation.
Therefore, all these negative factors only widened the gap between French car manufacturers and their rivals.
Prospects
It is clear that the companies are not going to give up. Peugeot Citroen and Renault are determined to overcome the problems they currently have. The companies have big-scale development plans:
Reducing production costs. The companies are planning to reduce their production costs at the expense of job cuts and lower buying prices. For example, Peugeot Citroen is planning to dismiss some 7K employees and to reduce the number of key suppliers to 13 in order to discuss substantial discounts in exchange for more considerable purchase volume. It is also planning to sell some of its assets.
Production of super-low-priced cars. The companies take into account the fact that there are many people around the world who cannot afford new cars. So, they are going to conquer the low-priced segment of the global car market. For example, Renault is planning to create cars under €3.000 for Latin America, India and Africa. By the way, not so long ago Renault opened a manufacturing facility in Morocco to produce Dacia Lodgy, a low-priced minivan. Peugeot Citroеn is going to revive the production of Talbot (the expected price is around €9.000).
Innovations. These days 15% of the funds allocated by the French government for innovation research are given to the country’s motor industry research. The focus is on hybrid technologies. For example, Peugeot Citroеn invented a hybrid-diesel auto. Peugeot is a pioneer of the electro-mobile sector.
Environmental friendliness. French car giants are working on reducing the engine capacity to cut down the emission of combustion products.
Reorienting to new markets. The companies’ task is to orient themselves to new markets outside Europe in order to reduce the dependence on the stagnating European market.
The bottom line: despite some drawbacks, French cars can be considered some of the best in their price segment. That is why the stocks of PSA Peugeot Citroen and Renault are worth investing in.
Do Peugeot Citroen and Renault have a chance to become some of the leaders of the global automobile industry?
