By on October 19, 2012

How does the French government save an ailing car maker that employs thousands of people without actually bailing out the auto maker? By baling out their finance unit, of course!

Banque PSA Finance, the credit arm of PSA, could see its loans become costlier if PSA’s debt is downgraded to “junk” status, a move that would hurt its ability to provide credit to dealers and consumers. With PSA locked in an ongoing, Europe-wide price war, it’s a debilitating position to be in. To make matters worse, BPF’s credit rating is tied to PSA’s, despite being on more solid financial footing. Finance arms are evaluated seperately by firms like Moody’s, but they are not allowed to be graded more than two notches higher than their parent company.

Automotive News Europe illustrates the severity of BPF’s situation relative to PSA’s auto making division.

As things stand, ‘BPF can refinance on the markets at around 4 percent, whereas Volkswagen is at 1-2 percent,’ said analyst Florent Couvreur of CM-CIC. ‘This is fueling VW’s sales offensive because it can offer loans at half the price,’ he added.

A multi-billion dollar rescue package, backed by major banks like BNP Paribas and Societe Generale includes a 1.5 billion euro credit line, government guaranteed funds worth 4 billion euro and 4 billion euro worth of postponed debt repayments.

PSA’s situation is dire. They are said to lose 350 euro on each car produced. 10,000 jobs and an assembly plant are on the chopping block. While the cuts are necessary to maintain the company’s financial integrity, France’s industry minister has pressed PSA to reduce the cuts, and demanded concessions in exchange for government assistance. In light of those realities, a bailout of PSA itself would be political poision. But a bailout of its financial arm…

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9 Comments on “With Junk Status Looming, PSA’s Finance Arm May Be Its Savior...”

  • avatar

    I can’t help but feel I’d have a Citroen if they sold them in the US currently. That DS5 is better looking than most cars available here today. Might even help their sales figures.

    I’ve always wanted a C6 Exclusive as well.

  • avatar
    sunridge place

    Story idea for the new ‘Finance’ guy Tyler…do a study on what % of US or global profits OEM’s make with their captive finance company.

  • avatar

    I know that both Ford Credit and GMAC were powerhouses that lept the ship afloat in NA. If GMAC hadn’t started into the subprime mortgage debacle they still would be owned by GM. Hell, GM might not have needed bailing out.

    Can one of our Euro guys let us know just how good/bad the PSA product is? Is it another GM story where decades of bad or indifferent models has hurt the brand? It’s always amazed me that they stayed out of the NA market during the 80’s and 90’s.

    • 0 avatar

      Hard to be objective on something like this, especially by marque rather than individual model, but here goes. Over this side of the pond there’s no CR but we have a few other similar sources of “lies, damned lies and statistics”. First up, Reliability Index:

      They rate manufacturers based primarily on average warranty claim costs. Peugeot place 12/35 and Citroen 17/35 (both comfortably in the site’s “good” band, substantially below leading brands like Honda and Toyota, but well ahead of duffers like Audi (!) and Land Rover).

      Next up J.D. Power customer satisfaction surveys:

      Pug sits 19th out of 28 with Citroen trailing at 21st. Both below average on that index.

      Anecdotally I have two close relatives who drive Peugeots (both 307 diesels) and one friend who owns a Citroen (petrol C4). All three are very fond of their cars and have kept them a long time by choice, but equally all three have begun experiencing niggling faults (especially electrical) – in the case of my brother’s 10 year old 307, the frustration of these faults is driving a search for a new car and neither PSA marque is in the running for his cash this time around. (though primarily because neither currently sells a product in the right size/power range which excites him)

      So on balance, they’re not stellar products, but they do seem to engender a degree of loyalty from their owners (based on the tiny sample I can offer), though perhaps not sufficiently to encourage repeat purchases.

      • 0 avatar

        “So on balance, they’re not stellar products,…”
        That’s the point. In highly competitive markets like automotive this is not enough.
        (BTW: Over the years, I have had a 305, a 406, and I’m currently driving a 207 SW. Neither was/is disappointing, nor heart-warming, although quite reliable, as compared to the VWs we also owned. Service also never was a problem with Peugeot. If you look at the huge market share PSA has in France you will have another indicator that those cars are not bad, although certainly not “stellar”.)

      • 0 avatar

        “So on balance, they’re not stellar products,…”
        I think that is right as well. Even more significant, is that for they don’t really offer anything that would make a customer overlook any issues. I accept that my BMW will cost more to run than a toyota or vw (here in Germany), but I am happy to pay the price because it is worth it to me.

        Lots of people living in the UK happily buy french cars, but onlz because they are cheap. They are definitely saddled with a reputation of poor reliability.

        I would also add that Peugeot is seen in many markets, like civics were in the US – ie very popular with young people and those who like to tune their cars with bodykits, exhausts etc..

  • avatar

    Hopefully by bailing rather than baling!

  • avatar

    Even if PSA eventually started selling here, it’s not going to happen soon enough to help. What is the quality of the typical car loan? how high are the standards to finance a car through BPF? If they went after Mitsubishi-grade borrowers I’d worry.

  • avatar

    Years of too much focus on low profit margin boite-merde. Tax-per-cylinder at home stifled any chance of successful footing in NA. I think the slide for PSA is ongoing and I doubt the manufacturing arm will recover.

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