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PSA  (PSA Peugeot Citroën) is a giant that many have either forgotten or don’t know about. A big part of the global image for Peugeot to this day is countless ancient 404s and 504s moving the masses around Africa. These incredibly tough vehicles could be seen driving at speed across unsurfaced roads with zero maintenance for years on end. For those born in the 1950s or 1960s Peugeot represented inherent quality and toughness, whilst Citroën represented the brand that could not stop raising two fingers to the rest of the world in rallying. So on the one hand we had a loyal family pet, and on the other a complete hooligan that we all quietly admired. Of course things have changed and those images disappeared long ago as parent company changed direction and found huge success in other ways.

Europe at the centre of the global automotive world

There is a well known OEM phrase – go to North America or the Far East to learn about high volume manufacture, but go to Europe to learn about quality engineering. In other words how someone can make a career out of designing the better door hinge or superior head restraint. European OEMs are the best engineering finishing schools on the planet in terms of understanding the breadth and depth of the knowledge required to create a new vehicle from bumper to bumper.

But things have been changing for decades, and are becoming more obvious by the day.

According to the European OEM club ACEA, global production of vehicles (bikes, cars, vans, pick-ups, trucks, buses, coaches) during 2014 reached 90.6 million units, of which 73.2 million units were cars. Europe built 17.2 million units of which 15.0 million units were cars – so around 20% of the global car production. These figures don’t tell the whole story because the OEM business is global, so there are European operations building all over the world just as there are non-European OEMs building in Europe.

The bottom line is Europe tends to influence the greater global industry, but does not produce the majority of vehicles. The highly competitive sector drives each OEM to get the best cost base possible for a manufacturer which may mean also – for strategic reasons – building close to or inside one of the destination markets. The whole equation is a good deal more complex than figuring out route options for an airline, taking into account which countries are friendly or not….


PSA is the holding company for the vehicle brands of Peugeot, Citroën and DS. It also owns the biggest automotive interior systems supplier in the world (Faurecia), makes bicycles/scooters (in France!) and used to own a huge distribution company (GEFCO) which it sold off mainly to the Russian State Railway (or was that circus?). When PSA is being brilliant, it really is world class.

During the 1950s through to the 1990s Peugeot automobiles had a carefully crafted formula – exterior design from Pininfarina so that they stood out from the competition, conservative evolutionary mechanicals with great durability and a policy to put new generations of model ranges into production whilst producing the old ones for as long as there was demand. Peugeot was often derided for the huge model overlap policy, but it worked – as did the evolutionary approach to technology – Toyota built as global empire on the same strategy. The only issue was timing. In the 1980s the average model life-span was around four years and included one or more updates. Peugeot took rather longer, and that meant models needed to be way in advance of the competition to survive competitions two model changes before the next Peugeot range appeared. However, that was at odds with the evolutionary approach to product design, and so the template was altered. Further, whereas Peugeot sold outdated model ranges in nearly all markets, Toyota would switch them on and off so that only one choice appeared in any market at any time.

In 1974 the Michelin family had been tested by the ownership of Citroën and Maserati in the face of ever increasing losses. Indeed Citroën was acquired by Michelin because it was in part owed money by the company, and no other French multi-national wanted the company. At this stage Citroën still had national public significance in France, whilst Maserati was sold off to DeTomaso… so what to do with Citroën? Step forward French Government industrial strategy. It was decided that the ultra-conservative Peugeot was mighty enough to take on a new division – Citroën – and restructure the resulting automotive company. Renault was having an extended period of ‘off-days’ at this time….

Whilst Citroën had conservative approaches to powertrains (apart from spending a fortune on a licence for Wankel engines) nothing else the company did was conservative, was ordered, or even occasionally sane. Apart from the products the two companies had identical departments doing identical work, and for more than a decade this continued.

Peugeot Citroën is born

We can see right from the late 1970s that the over reliance on the European market and inability to refresh products as fast as the competition left the company badly exposed. Added to this was the underlying debt and diverse product ranges from two car producers who were frequently trying to get the very same customer.

Step forward the first major change

Peugeot decided to invest in group wide platforms and powertrains. In addition they also sought to place Citroën at the lower price point for each market, whilst leaving Peugeot with the higher ‘quality’ orientated image. The first vehicle to appear from this policy was the Citroën Visa, a hasty conversion of the Peugeot 104, which, thanks to being slightly longer as well as cheaper, was a huge commercial success – which the 104 was emphatically not. The policy continued right across the model ranges, deleting expensive stand-alone models and allowing the huge excess manufacturing plant capacity to be slimmed down.

That step was correct for the European car market but resulted in cars that were no longer especially reliable or robust – thus leaving Africa behind. The truth is PSA in common with many other vehicle manufacturers had not enough cash to develop products as comprehensively as they did in the past and could get away with the loss of reliability on the well maintained road systems of its primary market, Europe. The big issue was the reliability of 404/504 was needed all along, especially if PSA were to re-take Africa as well as the Americas in any significant way. The Japanese and South Korean manufacturers knew this all along, but for many European-based automotive companies they chose to bury their heads and ignore the issue.

The second major change

There appear to be un-related secondary issues. That owning more factories than a company could ever need.  PSA needed to shed production staff and factories as a commercial objective, but in this case the French State intervened. Just as with Renault, there were plants which were kept alive and re-invested when the same amount of cash spent in the correct manufacturing country would have yielded a significantly greater profit.

Take the joint venture with Toyota. Three cars – C1, 107 and Aygo were designed and developed as one model range between the two companies. The three versions were built inside the same new plant in the Czech Republic, on the same assembly line. Good so far. Toyota took care of the powertrain (from associate Daihatsu) and the platform, whilst PSA did the interiors and the diesel engine. Really good so far. They harmonised quality expectations, plant logistics, and much more. Great. Then the after-market teams did the repair manuals – a Citroën team working on the C1, a Peugeot team working on the 107 and a Toyota team working on the Aygo. Three teams, three sets of answers…. for the same car!

The seconded PSA teams involved with design, development and manufacturing were so enthused about what they learnt from Toyota, they rushed back to Paris and spread the gospel. The result was Peugeot setting up a new assembly plant in Slovakia – to build the 207. The result was fierce resistance from the unions in the existing plants located in France as well as Spain, and dilution of the Toyota quality system because ‘Peugeot didn’t need it’.  The result? Vehicles which were designed and developed using the same old process, built in three existing plants as well as the new one to slightly improved standards.

Quite simply PSA had a huge competitive advantage that was squandered. Add to that the rationalisation of the Peugeot and  Citroën engineering teams which was completed by 2011 – a mere 37 years – and we can see that whilst the market trends were obscuring the identity of both Peugeot as well as Citroën the company was doing a great job of making huge errors, often with the help of the French Government.

The low points…

• PSA invested heavily in lean burn engine technology but were the wrong side of the winning lobby in it’s main market – Europe – as it decided to centre emission strategy on an air to fuel ration of 14.7:1 (Lambda = 1). The result was to trash a complete, wide powertrain investment range that took more than a decade to recover.

• The global move towards premium brands as they in turn expanded their product ranges downwards into the ‘mass market’. This implied the loss of reputation and created invisibility, as the mass market producers sought to establish their own brand identity with very poor returns.

• Building the brave Peugeot 1007 with two electric sliding doors and a hatch – again the market said ‘non’ and each car that was bought cost the company another £12,947 (nearly R257,000). Only the Bugatti Veyron (£3,887,051 per car), the Volkswagen Phaeton (£23,655 per car) and the Renault Vel Satis (£15,751 per car) lost more.

• Building the 607/407/C5 (X4), followed by the 508/C5/C6 (X7) which gained very modest traction in France but almost nowhere else.

• Building up the long-standing investment in Iran Khodro, which allows access to many markets in the Middle East that are not open to Western companies, only to fall foul of the US inspired economic sanctions against Iran. PSA protested, but were directed by the EU and French Governments to stop shipments of vehicle assembly kits in March 2012. Shipments resumed in July 2015, just after the Iran nuclear power agreement was signed.

• Attempting to marry Mitsubishi so soon after the latter had divorced Daimler. PSA paid for the evolution of the Mitsubishi i-MiEV into a vehicle which could be sold in the US in return for almost zero sales for the Peugeot iOn or Citroën C-Zero. There was deep confusion with the second generation Outlander built in Japan with PSA diesel engines called 4007 and C-Crosser, again with minimal sales.

Power, power

Just as Fauricia have relatively quietly got on with world domination, so the combined might of Peugeot and Citroën engineering has allowed many global vehicle manufacturers to power their vehicles. The list of companies who were supplied with complete engines, transmissions or allowed to build those under licence since the 1970s include:

• BMW (1.6l petrol and diesel engines)

• Fiat Chrysler Automobiles (1.6l, 2.0l and 2.2l diesel powertrains)

• Ford of Europe (1.4l, 1.6l, 2.0l and 2.2l diesels, 1.6l petrol)

• JCB (suspension systems, for Fastrac)

• JLR (2.0 and 2.2l diesel engines)

• MG Rover (1.4l diesel, transmissions)

• Rolls-Royce (suspension systems, pre-BMW)

• Toyota (1.4l diesel engines)

• Volvo Car (1.6l and 2.0l diesels, 1.6l and, long ago, 2.7l/2.9l V6 petrol)

In addition to these highly profitable joint ventures, PSA set up a manufacturing ventures across the world too:

• China (with Dong Feng)

• France and Italy (with Fiat Chrysler Automobiles, to produce vans)

• Iran (with Iran Khodro)

• Turkey (with Tofas, to produce vans)

It is interesting to reflect how the future powertrain strategy of BMW, Ford of Europe, Volvo and JLR has been heavily influenced by the collaboration with PSA. Whilst modern vehicle engineering is nearly 100 percent powered by computers, these are primarily tools for improvement rather than for innovation. PSA’s depth of knowledge especially in powertrain is without parallel, and is for hire too. So whilst the smaller clients notably JLR and Volvo Car, have recently introduced in-house powertrains (the highest value item in any vehicle), the ‘new’ elements are effectively small steps beyond the ground work.

Future work includes development of a Zafira replacement as well as panel vans with GM Europe, building the mid-sized panel van for Toyota in Europe, continuing with the FCA partnership to build a large panel van and continued collaboration diesel engine with Ford of Europe.

The birth of “Back in the Race”

In the post global economic collapse, the losses at the automotive divisions of PSA combined with questionable strategic actions came to a head in 2014. Three quarters of the lucrative transportation division (GEFCO) had already been sold to the Russian State Railway for €800 million by the end of 2012 and the French Government had also given a short term ‘loan’ (also given to Renault at the same time). The Peugeot family reluctantly stopped firing CEOs and allowed a board restructure to occur. The very best of French corporate heads had been in the driving seat at PSA, but the previous board had taken exception to them one by one – to the point that it was known to be an ‘ungovernable’ company. Reduction of the Peugeot family board influence was critical to the survival of the company, and for once the French Government did a good job of creating the right framework.

At the same time Dong Feng bought 14% of the shares for €3 billion, the French Government ‘bought’ 14% of the company and the Peugeot family reduced their stake from 25% to 14%.

Four important things happened too:

Four important things happened too:

1. A fully accountable board was elected complete with employee representatives – in other words, a normal corporate board.

2. Reduction of model count from 45 in 2014 to just 22 by 2022 – built on two platforms instead of the current seven platforms.

3. Introduce new specifically designed models for China, reversing the policy of passing on older model tooling.

4. The creation of DS as a brand in its own right, to push the company upmarket.

Cash was tight, so it was a question of making each investment yield the biggest profit and making the most of what already existed. So far it all sounded very familiar.

Then PSA got lucky

Renault had decided to scrap its second most important leader for the second time in less than two years, thanks to Carlos Ghosn. Some say this man can make any meeting on time. Some say he could be locked in a container, put into the Atlantic sea and still make a meeting on the moon arranged for just three hours later. All that is known is…. he’s called Carlos Tavares. Mr Tavares has never ever been late for any meeting. Whilst he is a product of the French high-end corporate education system, he is also a very capable engineer and a very competitive sportsman. Can anyone name a CEO who happens to rally a very potent car? I think that’s a ‘non’. PSA is full of very capable and well-motivated people, but it takes a great leader to lead great people – and for once not only does PSA have that leader, it also has a board that will stick to its job too.

The proof

The most important thing for any business is to remain alert and ready for change. PSA for too long allowed its key automotive markets to be undermined by better competition, had some self-inflicted injuries and an almost complete inability to promote themselves. For too long PSA did not manage to enter the North American market, let the Chinese market run away from it and relied on the European market to keep the car division afloat whilst with some irony, it’s specialist services quietly expanded all over the world.

This time is different

Using refresh policies that we saw when Fiat took over Chrysler for no cash what so ever, PSA have carefully refreshed existing models, introduced the minimum new models, introduced their version of shared architecture (EPM2) and…… for the first time in four years announced a profit for the first half of 2015. Just three years ago the company assets only included GEFCO, Fauricia and powertrain engineering. Now it includes the whole company (minus GEFCO), which is a pretty remarkable success down to collaboration between private investors, governments and the sheer will of the employees.

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