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Hitt og þetta 28. september 2006

DJ THE SKEPTIC: Peugeot Hunkers Down



By Matthew Curtin
A DOW JONES NEWSWIRES COLUMN

PARIS (Dow Jones)--There is less than meets the eye to Peugeot's latest restructuring plan.

The French auto maker needs to find a new CEO with a Carlos Ghosn-like talent for cutting costs and the ability to oversee a durable improvement in Peugeot's R&D and production methods.

It's almost an impossible task given the industry's overcapacity in Europe, and the growing threat European automakers face from lower-cost and increasingly reliable Japanese, South Korean, and, in the future, Chinese competitors.

If investors have reacted well to outgoing CEO Jean-Martin Folz's latest announcement, it's because he made clear Peugeot has to get a grip on costs short-term, while recognizing the company has taken too long to get new models to market.

A promise of second-half cost savings worth EUR125 million is comforting, given that that is equivalent to either side of 10% of the estimated 2006 operating profit for the auto maker.

The commitment to spend money on R&D more efficiently and reduce the average age of Peugeot models looks smart in the current context, where Peugeot has been caught so short by high raw material prices and a slump in demand as it waits for a relatively full-range of new models to hit the showrooms.

But the raft of other measures announced by Folz amount to a recap of existing measures.

A headline-grabbing announcement of 10,000 job reductions includes those already lost at the Ryton plant in the U.K., which is headed for closure, as well as cutbacks in temporary staff and non-replacement of departing workers. Some of Peugeot's French operations have operated at well below capacity since the end of last year.

Peugeot's reduction in capex in Slovakia, a tie-up with Mitsubishi to add an outside-manufactured SUV to fill a hole in the French company's lineup, and talks with Malaysia's Proton predate Tuesday's announcement.

It all leaves Peugeot shares looking dirt cheap for a good reason: a sustained revival in the auto maker's fortunes looks a way off.

(Matthew Curtin has been a financial news reporter since 1990, and has reported on international finance and business for Dow Jones Newswires - from South Africa, Singapore and now Paris - since 1994. He can be reached at +331 4017 1740 or by e-mail: matthew.curtin@dowjones.com)

(END) Dow Jones Newswires

September 27, 2006 07:03 ET (11:03 GMT)

Copyright (c) 2006 Dow Jones & Company, Inc.