Peugeot revs up production in sharp change of fortune

PSA Peugeot Citroen has unveiled plans to ramp up European production in a sign of the gathering strength of the region's car market and increasing confidence at the French manufacturer.

Only a year ago the carmaker - Europe's second-biggest by sales - was battling to stem losses amid a sharp decline in sales.

But,with a new chief executive and fresh from a €3bn cash injection involving the French state and Chinese carmaker Dongfeng, Peugeot on Tuesday announced it would make 60,000 more cars than previously planned between May and August.

Analysts said the latest production announcement by the Paris company would add 3.5 per cent this year to the 1.8m cars Peugeot sold in Europe in 2014.

"Growth in the European market is very good news for the entire automotive industry," said Denis Martin, Peugeot's operational director in Europe. "It's having a real turbo effect on PSA's performance."

Peugeot's production forecasts - which it does not publish - had assumed relatively flat European demand this year, up just 1 per cent.

But in the first three months, European Union car sales rose 8.6 per cent compared with the same period in 2014, according to the Acea manufacturers' body, which highlighted strong growth in Spain and Italy. The first quarter figures built on 2014's momentum, when car sales rose for the first year since the financial crisis.

Several Peugeot models have found favour in the early months of this year, including the distinctive Citroen C4 Cactus, a sport utility vehicle made in Madrid with air-filled plastic side panels. The news came just days after Peugeot used the Shanghai motor show to announce that it was building a small car platform with Dongfeng, one year after the Wuhan carmaker bought a 14 per cent stake in its French counterpart.

In a deepening of the partnership between the two companies, Peugeot and Dongfeng will invest €200m to build vehicles sharing common parts.

Taken together, the announcements are the latest phase in chief executive Carlos Tavares's "back in the race" plan - his project to turn round the carmaker.

Until now, Mr Tavares' focus has been on slashing costs, managing job cuts, lowering capital spending and raising prices. In February the French carmaker reported its first full-year operating profit since 2010.

Stuart Pearson, analyst at Exane BNP Paribas, said: "If Tavares' job number one was returning core PSA to profitability and positive free cash flow, job number two is clearly to establish a credible long-term strategy that addresses the firm's lack of scale and EU dependency."

Peugeot shares were up 3.3 per cent at €17.08 at the close of Paris trading, having risen by two-thirds this year.

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