LDN - Business

Peugeot speeds Opel technology shift to cut emissions

[November 09, 2017] By Laurence Frost and Gilles Guillaume

FRANKFURT/PARIS (Reuters) - Peugeot maker PSA Group vowed to move Opel models onto its own technology faster than initially planned to improve their emissions performance and secure promised savings from its acquisition of the loss-making German carmaker.

Rapid product launches will complete the transition to PSA vehicle architectures by 2024, three years ahead of the previous timetable, Opel said, as it outlined turnaround plans that leave a 1.7 billion euro ($2 billion) synergies goal unchanged.

The adjustment suggests PSA and Opel will have to do more, and faster, to achieve savings the French carmaker had promised after agreeing to buy Opel from General Motors in a March deal that valued the business at 2.2 billion euros.

It also reflects the tougher task of meeting European Union emissions rules with legacy Opel vehicles and engines developed under GM. The EU has just published proposals for a further 30 percent carbon dioxide emissions cut by 2030.

"We quickly came to the conclusion that Opel was not ready to reach the CO2 targets set by the EU for 2020-2021," Opel boss Michael Lohscheller told reporters and analysts at the brand's headquarters in Ruesselsheim, near Frankfurt.

"The good news is that synergies are validated (at) a detailed level," he said.

PSA shares fell 2.2 percent to 19.70 euros at 1217 GMT, after Chief Executive Carlos Tavares said Opel's financial health had worsened as plans were being drawn up. "The situation gets worse by the day," he said, without giving details.

Yet Opel pledged to avoid factory closures or forced layoffs, instead relying on a doubling of exports by 2020 to fill underused plants as it enters new markets such as Argentina and Saudi Arabia. Weak international development under GM was a frustration in Ruesselsheim.

"Opel will go global, finally," Lohscheller said, while cautioning the plan will nonetheless require "reduction of cost in all areas including labour".

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Chairman of the Managing Board of PSA Group Carlos Tavares attends a news conference in Ruesselsheim, Germany November 9, 2017. REUTERS/Ralph Orlowski

Wage costs will be pared from about 15 percent of revenue to an 11 percent benchmark as Opel negotiates voluntary departures, early retirements and shorter hours with its workers - part of a broader effort to cut 700 euros of costs per vehicle.

"PSA has taken on a damaged company with weak brands," said Bernstein analyst Max Warburton. "But automotive turnarounds usually surprise, and this one has a good smell about it," he added, reiterating an "outperform" rating on the group's shares.

The renaissance of Opel and its British Vauxhall unit will be based on "German engineering for all and a perfect match with (the) PSA brands", Lohscheller said, referring to Peugeot, Citroen and DS.

Opel will introduce at least two new cars in 2019 including the Corsa mini, with a larger car and SUV to follow, among nine models or variants promised by the following year.

All models will offer electric or plug-in hybrid versions by 2024, and Opel's Ruesselsheim engineering center will specialize in future technologies such as fuel cells and driving autonomy.

The product blitz will be more ambitious than previously suggested. PSA had said in March that technology convergence would begin in 2019 and take another eight years to complete.

Despite the faster pace, however, PSA maintained both the 1.7 billion euro synergies goal and its 2026 deadline, with 1.1 billion or roughly two-thirds of that amount due by 2021.

It also confirmed previously announced profitability targets for Opel that call for a 2 percent operating margin in 2020, rising to 6 percent in 2026.

($1 = 0.8616 euros)

(Reporting by Laurence Frost; Editing by Hugh Lawson and Mark Potter)

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