Peugeot Citroen Records Massive Net Loss
By Industry Leaders Magazine | February 14, 2013 12:41 PM EST
Peugeot Citroen posted a net loss of €5.01 billion for 2012 after sales in the European markets slumped which resulted in a write-down of €3.9 billion worth assets of the carmaker. Also, the increase in the price of steel pushed up the operating costs of the company.
Peugeot's Historic Loss
PSA Peugeot Citroen, the second largest European carmaker, reported its worst-ever net loss of slightly over €5 billion after demand in European markets decreased which led to the write-down of automotive assets worth almost €4billion. The French carmaker was caught in an awakening probe of the perilous state of the car market and was forced to write down assets of approximately €4.5 billion. The European car market crisis shrunk the sales of Peugeot by around 8.6 percent in the region while deliveries reduced by 12 percent . The hefty €5 billion net loss indicates declining sales in the depressing European regions of France, Spain and Italy where demand has collapsed. Peugeot Citroen incurred an operational loss worth €1.5 billion, while the company gained nearly €1 million in 2011. Moreover, revenue dropped by 5 percent to €55.4 billion, while sales in the automotive sector further reduced by 10 percent to €38 billion.
Peugeot Citroen was compelled to write-down a heavy charge of €4 billion worth assets which highly contributed to bringing down the profits of the company.. With the rising troubles of Peugeot, including the €1 billion loss in the first half of 2012, the French government is keen on supporting the auto giant. French President François Hollande, was believed to have expressed a promise to buy a stake in the company if conditions worsened. However, the Finance Minister of France, Pierre Moscovici, disposed away the rumor by stating that the government was not intending to buy a stake in Peugeot Citroen.
Affirmative Recovery Goals
Peugeot Citroen is determined to return to a profit after the company anticipated the biggest-ever loss. The French carmaker laid out contingency plans in order to recover from the loss and announced new cuts for 2013. Peugeot managed to cut down manufacturing expenses by over €1.2 billion during the year 2012. The company is planning to improve the components of Peugeot cars by upgrading the system with double the average volume. Peugeot has announced to reduce its burn ratio by around half of its present rate in 2013.
Peugeot is rumored to get into an alliance with the Detroit-based General Motors for the production of compact hatchback cars which are expected to hit markets early in 2016. Also, the Paris-based company is planning to downsize its workforce in the French automotive sector by 17 percent by the end of 2015.
According to a statement released by Peugeot, the company is incurring a loss of €7 million per day due to the crashing of European markets. However, the European Union has agreed to rescue Peugeot Citroen by guaranteeing a borrowing of €1.2 billion at Banque PSA Finance provided that the company forms a restructuring plan within six months.