Bloomberg News

Volkswagen Wins France With Financing Peugeot Can’t Match

July 18, 2012

VW Steals Market Share From Peugeot With Cheap Financing

While Peugeot’s car sales in France plunged 22 percent in the first half and Renault’s tumbled 19 percent, Volkswagen’s slipped just 3.3 percent. Photographer: Michele Tantussi/Bloomberg

For decades, France’s elite troops have marched down the Avenue des Champs-Elysees in Paris to mark Bastille Day, passing countless tricolor flags and -- almost as important to French national identity -- dealerships for PSA Peugeot Citroen (UG) and Renault SA. (RNO) Next summer, they may also find a Volkswagen AG (VOW) showroom on their route.

VW is negotiating to open a store on France’s most famous shopping street as the German company steps up its challenge to Renault and Peugeot on their home turf. VW’s first-half share in France grew to 13.5 percent from 11.9 percent a year earlier, according to France’s CCFA automakers association. Peugeot and Renault each lost about 1.5 percentage points of share.

As Europe’s most profitable carmaker, VW has been able to borrow at cheaper interest rates than many of its rivals. That advantage has translated into better deals for French consumers.

“There’s been a slide since the start of the year, with German carmakers borrowing at around 2 percent and the French at 6 percent,” said Philippe Houchois, an analyst with UBS in London. “This difference in financing costs may lead eventually to a gradual difference in competitiveness.”

French buyers pay as little as 1.9 percent annual interest on 10,000 euros ($12,280) in financing from Volkswagen, the company says. From Peugeot, the same loan would cost around 11.6 percent annually, according to the automaker’s website. Renault says it charges 5.9 percent.

Peugeot, Europe’s second-biggest carmaker, could see its borrowing costs rise further. Moody’s Investors Service placed its Ba1 rating on Peugeot, already junk, under review on July 13, and yesterday it put the carmaker’s bank on watch for a downgrade. Volkswagen had 17 billion euros of net liquidity at the end of 2011, while Peugeot faced net debt of 3.35 billion euros. Renault had 299 million euros of net debt.

‘Full of Money’

That edge also gives VW a technological advantage, said IHS Automotive analyst Christoph Stuermer.

“Volkswagen is so full of money,” Stuermer said. “They’re filling their vehicles with features, with quality, with technology that the others simply can’t afford.”

Peugeot’s passenger car sales in France tumbled 22 percent in the first half, though the company remained the top seller with 30.6 percent of the market. Renault saw its sales drop 19 percent and had 22.8 percent share. Volkswagen’s sales slipped 3.3 percent as deliveries in the overall market fell 14 percent.

Patriotic Challenge

“I’m lucky to work for Volkswagen,” said Gwenael Leroux, a VW dealer near Montmartre, the hill that towers over north Paris. “I’d say about 60 percent of our new clients used to buy Peugeot or Renault cars.”

That’s not to say the German automaker will easily win over French car buyers, many of whom maintain a strong allegiance to their national brands.

“We want to buy French,” said Pascal Guignard, a Parisian checking out a Peugeot 5008 with his wife at the carmaker’s Champs-Elysees showroom. “We heard about Peugeot’s difficulties, so being a little patriotic wouldn’t be a bad thing.”

Peugeot’s reliance on France and southern Europe for sales has made it more vulnerable to the economic slump than Volkswagen, which is the leader in Germany and has booming sales in China. Peugeot is seeking to slash 14,000 jobs and stop production at a French factory to stem widening losses.

The company said last week its automotive unit will post a first-half operating loss of 700 million euros, compared with a profit of 405 million euros a year earlier.

Diverging Fortunes

Peugeot in April signed an agreement to sell its 48-year- old headquarters near the Arc de Triomphe at the top of the Champs-Elysees for 245.5 million euros as part of an effort to decrease its debt. The carmaker plans to lease the building from the new owner.

The automaker’s credit-default swaps reached record highs over the last two days as investors bet the company has a 51 percent probability of default within five years. The stock has traded at a 23-year low for most of the last month. The shares gained 23 cents, or 4 percent, to 6.10 euros in Paris trading today, valuing the carmaker at 2.16 billion euros. VW is up 19 percent this year, giving the German automaker a market capitalization of 62.3 billion euros.

Peugeot Chief Financial Officer Jean-Baptiste de Chatillon told newspaper Les Echos today that one reason for the share- price drop is investor concern the French government may block the restructuring program. Chatillon said the automaker will outline the plan in detail when it reports earnings next week. Peugeot spokesman Pierre-Olivier Salmon confirmed the comments.

Peugeot Chief Executive Officer Philippe Varin will also meet French Industry Minister Arnaud Montebourg later today to discuss the restructuring, Salmon said.

Target Scrapped

Renault has suffered less because of its partnership with Nissan Motor Co., which allows it to share developmental costs and gives it access to more markets. Renault says it expects to sell more than half of its vehicles outside of Western Europe in 2013, up from 43 percent today and 37 percent in 2010.

Nonetheless, Renault sales chief Jerome Stoll last week scrapped the carmaker’s 2012 sales-growth target after reporting a first-half drop in deliveries of 3.3 percent. He said Europe may not recover to pre-crisis levels until 2018.

VW, which also owns the Audi, Skoda and Seat brands, is Europe’s biggest automaker, delivering almost 25 percent of all cars in the region. Globally, VW is behind General Motors Co. (GM:US) and Toyota Motor Corp. (7203), though it aims to surpass them by 2018 to become the world’s No. 1.

To keep the pressure on its French rivals, Volkswagen is negotiating to lease the Champs-Elysees storefront currently occupied by record-seller Virgin Megastore, said VW spokeswoman Leslie Peltier. The location, directly opposite Renault’s “atelier,” would give plenty of potential customers a close-up view of the German automaker’s latest offerings during next year’s Bastille Day celebrations.

To contact the reporters on this story: Alex Webb in Frankfurt at awebb25@bloomberg.net; Mathieu Rosemain in Paris at mrosemain@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net


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