Peugeot-Citroen May Expand Collaboration With Mitsubishi Motors

On Tuesday, the French carmaker PSA Peugeot-Citroen announced it may expand collaboration with Japan’s Mitsubishi Motors Co. Ltd. This move would involve working on smaller vehicles. The company has established a lofty goal for 2010-2012: EUR3.7 billion in cost savings designed to increase profits.

Peugeot-Citroen has already worked on SUVs with Mitsubishi. It also sells re-branded versions of the electric Mitsubishi i-MiEV and is currently collaborating on delivery vans that run on electricity. Philippe Varin, chief executive of Peugeot-Citroen, informed shareholders that a sub-compact vehicle is still under consideration, as emerging markets need B-segment automobiles.

Mr. Varin stated that though a smaller model is being considered, it is not high-priority. Right now, saving money is the focus. The company plans to reduce costs by an additional EUR1.1 billion in 2012 to top a similar reduction this year.

In 2010, Peugeot-Citroen was able to save EUR1.5 billion, exceeding its original goal by EUR400 million.

The company announced the expectation that its 2011 automobile division operating income should be above the 2010 level. EUR1.1 billion from cost savings will more than offset the impact of rising raw materials and input costs.

In 2011, free cash flow is anticipated to be positive. For the first half of 2011, operating profit for the automobile division should be similar to that of first half 2010, exclusive of reduced production from the Japanese earthquake and tsunami.

The automaker repaid EUR2 billion remaining from a EUR3 billion loan provided in 2009 by the French government to ease liquidity issues from an industry slump. It believes the auto market in Europe will be flat in 2011 so it is focusing on expanding in emerging markets like Latin America, China, and Russia.

Car buyers are scooping up car loans in these nations, with percentage growth expected to reach double digits.