Peugeot warns on loss of scrappage schemes

Publication date: 24 June 2009

PSA Peugeot Citroën on Tuesday sounded the alarm over consequences for carmakers if governments abandoned the car-scrapping schemes that have buoyed sales, with a warning that its losses this year could hit €2bn ($2.8bn).

Three weeks after Philippe Varin took the post of chief executive of Europe’s second-largest carmaker, the group warned that production in the fourth quarter could be scaled back again if government-supported programmes ended this year.

Carmakers are anxious about a tumble in sales should governments withdraw the schemes, which have proved effective.

Peugeot on Tuesday revised upwards its expectations for European car sales in 2009, saying it expected the market to contract by 12 per cent against previous expectations of 20 per cent at the beginning of the year.

But “a number of uncertainties remained”, the group said, including the future for scrapping.

Peugeot’s comments highlight the difficulties governments will face in weaning carmakers off state-supported incentives.

France, the first of the 12 European countries to launch a scrapping scheme as part of its €6bn car industry bail-out, will decide in January whether to continue. Many expect the government to reduce the €1,000 trade-in incentive in stages.

Germany, which has the most generous scheme, is weighing its options.

Max Warburton, of Bernstein Research, suggested that pessimism over post-incentive sales was overdone. Those trading in 10-year-old cars, as in France, were not traditional new car buyers, he said, but people who normally bought used vehicles.

“These schemes have temporarily created a new market,” he said.

Stuart Pearson, equity analyst at Credit Suisse, said Peugeot’s forecast for losses this year of between €1bn and €2bn was as expected. It was “in the ball park of what we were expecting, given the lower volumes Peugeot will face this year”, he said.

“However, they’ve deliberately kept the guidance in a pretty wide range, given uncertainties over whether scrappage schemes might be extended into 2010,” Mr Pearson said.

Peugeot announced a convertible bond issue of up to €575m. The group, which recorded a €343m net loss in 2008, said the capital raised from the bond issue would go towards “general financing needs”, development projects and the extension of the maturity of its existing debt.

The initial bond offering will be €500m, with the option to increase to a maximum of €575m. The offer will run from June 23 to 25, with a redemption date of January 1 2016.

Peugeot received a €3bn long-term loan from the French government in March and a €400m four-year loan from the European Investment Bank in April.

Mr Pearson said the bond issue was a “necessary” measure for the car manufacturer given current low visibility.

Source: The Financial Times