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FRANCE: Raw material cost rises strain PSA eyeing US market return

24 May 2006| Source: just-auto.com editorial team

This '87 505 was sold new in the US. The 405 was the last model line, launched in '88 and dropped in the early 1990s when the brand pulled out

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PSA

 Peugeot  Citroen  on Wednesday said a further rise in raw material prices was putting an extra strain on its 2006 results but it retained its operating profit margin target.

The increase in raw material prices - of precious metals and oil - is weighing on the sector and comes on top of fierce competition and sluggish car sales in western Europe, Reuters reported.

"It is clear that at the start of the year there has been additional tension on the raw material prices," PSA chief executive Jean-Martin Folz reportedly told the company's annual general meeting.

Steel and plastics were rising in line with expectations Peugeot had at the beginning of the year, he said, but price increases were bigger than forecast in non-ferrous metals such as platinum.

According to Reuters, Folz added it was too soon to judge how long this price situation would last.

The group still expects its operating margin in the first half to be equal to the 2.8% of the second half of 2005, and forecasts a margin rise for the second half thanks to sales of its new 207 model.

PSA Chairman Thierry Peugeot reportedly said the group would launch new models and continue to cut costs.

Reuters noted that PSA earlier this month estimated the impact of the rise in raw material prices to be EUR200m to EUR250m ($US321m) in 2006.

"We have to get back to growth of our volumes and our market share," Folz reportedly said, adding: "We have to continue to grow our sales outside Europe at their recent rate of more than 10% per year and we need to continue to cut costs by EUR600m a year." These cost cuts were needed all the more because of the higher raw material prices.

According to Reuters, he said PSA had no plans to expand in Japan or the United States but that "the return of PSA to the US market is a very big challenge ... but I hope we can take that on in the not too distant future".