PARIS: Troubled French automaker PSA Peugeot Citroen said it was weighing a state-backed rescue for its car loans arm, as the government warned that help would come with strings attached.
Punished by its costly domestic production and excess capacity, Peugeot is losing a European price war to larger and leaner rivals such as Volkswagen.
Recent downgrades to Peugeot’s credit rating threaten to relegate the financing arm to junk status, further widening the competitiveness gap by making its loans more expensive.
Officials are working on measures to help Banque PSA Finance (BPF) “obtain the necessary financing,” Finance Minister Pierre Moscovici said. “All of this will be finalized very soon.”
Peugeot is “examining different options” for the division, a company spokesman said.
As things stand, “BPF can refinance on the markets at around 4 percent, whereas Volkswagen is at 1-2 percent,” said Florent Couvreur of CM-CIC.
“This is fueling VW’s sales offensive because it can offer loans at half the price,” he added.
Peugeot is losing close to 350 euros on every vehicle sold, Chief Executive Philippe Varin said last month. Its share of the shrinking European auto market dwindled to 11.8 percent in January through September, from 13.5 percent two years earlier.
Volkswagen’s market share jumped 3.5 points to 24.8 percent over the same period.
According to Le Figaro, which first reported the BPF talks, a rescue package is likely to postpone repayments on 4 billion euros ($5.2 billion) of bank debt and introduce a new 1.5 billion-euro credit line and a 4 billion-euro state guarantee.
Banks involved in the negotiations include BNP Paribas, Credit Agricole, Natixis and Societe Generale, the French daily said.
Faced with slumping demand and tougher competition, the French carmaker plans to cut more than 10,000 domestic jobs, close an assembly plant near Paris and shrink another.
But the restructuring has drawn fire from government officials including Arnaud Montebourg, the industry minister, who has repeatedly pressed Peugeot to reduce the scope of cuts.
The company will have to give unspecified undertakings if it wants government help, Montebourg warned.
“There can be no state guarantee without commitments in return,” he said.
A role in rescuing BPF may give the government new leverage to delay or restrict Peugeot’s restructuring, observers agree.
“It certainly makes it more difficult,” Barclays Capital analyst Kristina Church said. “Even if there were no official strings attached, there could be pressure.”
BPF offers financing for Peugeot and Citroen dealers and customer loans, contributing 979 million euros to group revenue in the first half.
Moody’s cut the automaker’s debt rating last week to Ba3, three notches below investment grade, raising the likelihood that the financing arm would also be relegated.
While loans divisions are evaluated separately by the major agencies, their ratings are not allowed to stay more than two notches above the parent carmaker’s.
The downgrades “may drag Banque PSA into sub-investment grade in spite of its intrinsic solidity,” Peugeot spokesman Jonathan Goodman said in an e-mailed statement, citing the division’s 13.3 percent solvency ratio.
In July, Standard & Poor’s also cut Peugeot to BB, two rungs below investment grade, with a “negative” outlook signalling that a further reduction was likely.
Peugeot shares were 2.8 percent higher by 1207 GMT, outperforming a 0.5 percent gain by the Stoxx Europe autos & parts index.