Peugeot shows rivals how it should be done

Jean-Martin Folz, president of PSA-Peugeot-Citroën, seemed to be without a care in the world last week as he inspected the group’s revamped factory near Rennes.

Jean-Martin Folz, president of PSA-Peugeot-Citroën, seemed to be without a care in the world last week as he inspected the group’s revamped factory near Rennes, Brittany, where output of the new C5 saloon is gathering pace. It probably had something to do with proving critics wrong.

Until little more than a year ago, PSA was widely regarded as vulnerable to takeover because it was too small and too regional. Today it is one of the most profitable companies in the car business. It sold a record 2.8m vehicles last year, a third more than three years ago. Now it is reaching for sales of 3m.

In the UK, in contrast to the lamentations about the future of car making at Luton, Longbridge, Dagenham and Sunderland, PSA’s Ryton plant outside Coventry is doing very nicely. Its output of the Peugeot 206 last year stood at 190,000 vehicles, a record for the fifth year running. Indeed, the model is so popular that Ryton’s 3,150 assembly workers have been working three shifts a day since June 1999 to keep up with demand.

The performance should be a reminder to PSA’s rivals about basic business practices. Of course, all companies profess to know that offering the right products is the foundation stone for all successful enterprises. Then they fail to produce them. What those companies are really saying when they whinge about over-capacity is they got their planning wrong.

Of course, other factors are critical as well, none more so than exchange rates. Ryton sailed through the strong sterling crisis because the majority of its costs are in euros. While the 206’s pure assembly work is paid for in sterling, the manufacturing and component sourcing is largely done in the eurozone. It is not the same as full UK manufacturing of the type carried out at MG Rover, Nissan, Jaguar or Land Rover.

Ryton’s immediate future, then, looks good. The 206 is popular and PSA needs the capacity. There will be a crunch some time over the next three years, though. The group has to decide whether to construct a new, low-emissions paint plant at Ryton. That investment will be determined by PSA’s general prospects and by exchange rates.

Folz has the luxury of time, unlike his opposite number at Ford of Europe, Nick Scheele, who wants the UK to adopt the euro at the earliest (appropriate) opportunity. ‘The decision will be easier to make if we have a clear view of the currency situation,’ says Folz. ‘But I am not putting on any pressure because we don’t have to decide right now.’

It will be a tense time for Ryton when that decision is made, though. If PSA decides on a new paint plant, Ryton will build Citroëns as well as Peugeots because the group’s policy now stipulates industrial integration of the brands. If a new plant is turned down, Ryton will go the way of car assembly at Dagenham and Luton.