PSA Group managing board chair Carlos Tavares delivers a presentation of the group's full-year financial results, in Rueil-Malmaison, February 26 2019. Picture: ERIC PIERMONT/AFP
PSA Group managing board chair Carlos Tavares delivers a presentation of the group's full-year financial results, in Rueil-Malmaison, February 26 2019. Picture: ERIC PIERMONT/AFP

Paris — With the car industry in retreat and US President Donald Trump threatening new tariffs on European vehicles, France’s PSA Group is stepping into the fray with a plan to re-enter North America with the Peugeot brand.

A quarter of a century after the manufacturer stopped selling cars in the US, the world’s second-biggest market, CEO Carlos Tavares said on Tuesday PSA will start shipping vehicles from Europe or China in 2026.

PSA has been working towards the announcement, adding a car-sharing service in Washington, DC in 2018. The French manufacturer’s move will help lessen dependence on Europe, where it delivered 80% of its cars in 2018, including the compact Peugeot 308 and the 3008 sport utility vehicle.

Still, the risks are great because the compact-car market, one of Peugeot’s strengths, is small in the US. However, PSA says it will take things slowly, with a planned entry in 2026.

The decision marks a rare show of confidence in a car-making industry whose fortunes turned sour in 2018 after trade wars and slowing economic growth added to the hefty cash demands of keeping up with technological changes. Despite this, Tavares, a one-time protege of fallen Renault SA titan Carlos Ghosn, managed to return the Opel brand to profitability after acquiring it from General Motors in 2017. PSA’s Peugeot, Citroen and DS premium brands have also topped margin goals.

'Exceptionally competitive' market

Entering the US, where Volkswagen’s namesake mass-market brand has consistently struggled, will see PSA exposed to an “exceptionally competitive” market for compact vehicles, said Evercore ISI analyst Arndt Ellinghorst. “I would recommend PSA to tackle this with a partner rather than trying to establish a hardly known, new brand in the US,” he said.

Investor scepticism about the plan and a cautious outlook for the year sent PSA shares tumbling as much as 5.2% to €21.57, the most in more than three months, after reporting annual earnings.

The logo of French car manufacturer Peugeot at a dealership in Selestat, France. Picture: REUTERS/VINCENT KESSLER
The logo of French car manufacturer Peugeot at a dealership in Selestat, France. Picture: REUTERS/VINCENT KESSLER

The shares were at €22.00 at 11.07am in local trading. The company’s new expansion phase entering additional markets and electric models “looks much tougher, with higher risks” and will potentially require more spending, Morgan Stanley said in a note.

PSA, which is also expanding in India and Russia, already faces a struggle in China, where it lost €294m ($334m) in 2018 and sales with partner Dongfeng Motor Group slumped by more than one-third. The company is making changes to its dealer network and introducing more popular sport utility vehicles, it said.

PSA has already started engineering its future models to meet US safety and emissions rules. The company chose its Peugeot brand for the comeback, after saying in 2018 it had most recognition among Americans.

“We are taking a pragmatic approach to entering the North American market,” said Larry Dominique, president of PSA’s North America division. “From the larger ‘mobility services’ revolution currently taking place, to the more fundamental models of retail, service, financing and logistics — we’ll continue to build our plan on careful, scalable solutions.”

The decision to move back into North America comes as PSA is faced with slowing demand in Europe, where deliveries dropped for a fifth straight month in January. Uncertainty over a no-deal exit of the UK from the EU and an economic slowdown in Italy and Germany are weighing on car sales.

For the group, PSA targets an average automotive return on sales of 4.5% during 2019-2021. This compares with an average margin of 7.2% during 2016-2018, excluding the Opel acquisition.

The new goal was an “all-weather” guidance that takes into account a soft or hard Brexit, CFO Philippe De Rovira told reporters.

Bloomberg