Peugeot’s CEO to step down amid Dongfend talks

PSA Peugeot Citroen is looking for a replacement of the Chief Executive Philippe Varin after he requested to step down next year. The company is reviewing options among which is to hire former Renault SA Chief Operating Officer Carlos Tavares on the position, two people familiar with the matter said to Bloomberg.

The search comes as the French manufacturer, which reported a first-half operating loss of 510 million euros ($690 million), tries to partner with Dongfeng or another automaker to broaden its market exposure and contract its reliance on Europe, where it sells more than 50% of its vehicles. Peugeot has proposed a capital increase of at least 3 billion euros, in which Dongfeng and the French state would take equal holdings of about 20%, people familiar said last month.

“If PSA wants to raise equity then I think it makes sense to show to the market that you’re willing to make some big changes,” Erich Hauser, a London-based automotive analyst with International Strategy & Investment Group, said in an e-mail to Bloomberg. “Putting in place a new CEO would send just that message to investors and Dongfeng.”

Peugeot, one of the car-makers worst-hit by Europes six-year market slump, is cutting French jobs and plant capacity as it struggles to halt losses within two years. The company is considering closing an assembly line at one of its factories in eastern France as Europe’s second-largest car-maker by sales seeks to reduce fixed costs amid weak sales on the continent. The French group is looking to cut production capacity at its Mulhouse factory if demand does not pick up next year. With two lines, the factory built 224,000 cars last year, around half its potential output.

Possible Peugeot/Dongfeng alliance would follow Renaults 14-year-old alliance with Nissan as a model for the deeper partnership. Both companies need to find a CEO who will lead the interaction between them the way (Renault CEO) Carlos Ghosn has transformed Nissan.

Carlos Tavares, began his career at Renault in 1981 and moved to Nissan 23 years later as a program director before going on to hold senior alliance roles such as chief of Nissan Americas, later taking position as Ghosns deputy at Renault.

PSA Peugeot Citroen shares are up more than 4% today trading at 10.67 euros per share.