Peugeot looks to new hatchback for turnaround

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By SARAH DiLORENZO, Associated Press

SOCHAUX, France (AP) — Peugeot is hoping a complete makeover of its mid-sized hatchback will help turn the struggling French automaker's fortunes around— and dent the market dominance of its German rival Volkswagen.

But a lot is riding on the new 308's success: Peugeot SA's sales show little sign of recovery in a stagnant European car market and the carmaker has had to cut costs significantly, including closing down a plant.

However, the company's chief executive, Maxime Picat, said in an interview Tuesday on the production line for the new 308 that all the elements for a rebound are in place: new products, cost-cutting, and signs that demand is slowly recovering after years of slumps.

The company, like many European carmakers, is reeling from years of falling sales as consumers hang on to their old cars amid high unemployment and recession. Last month, parent company PSA Peugeot Citroen reported a first-half loss of 426 million euros ($568.2 million).

Picat said Peugeot thought that slide in demand was slowing and the second half of the year would show some improvement. Car sales in the European Union fell 6.6 percent in the first half of the year as compared to 2012; they were down 11.3 percent at Peugeot.

Picat stressed, however, that Europe's car market will struggle for a long time. U.S. manufacturers are rebounding after bailouts and major restructuring. Don't expect those kinds of results from Europe, he said.

"It's very unlikely that we can recover, in the short term, the level of 2007" before the crisis hit, he said.

To offset the dire state of Europe's car market, Picat said Peugeot is actively looking outside the continent where it has traditionally made most of its sales. It hopes to do half of its business outside Europe by 2015, he said.

On top of Europe's economic problems, Peugeot and other French manufacturers have to face a local challenge: The cost of making cars in France is much higher than in countries such as South Korea and neighboring Germany, which have succeeded in cutting production overheads.

Peugeot has tried to surmount that problem in two ways: It is shutting down an uncompetitive plant north of Paris and has also tried to market some of its cars to higher-end customers so they can sell for more.

Competitor Renault, by contrast, has faced the high costs head on, negotiating a more flexible contract with its unions. Picat said that Peugeot was also considering pursuing such an agreement, but he would not go into details.

The 308, which will be officially unveiled at next month's Frankfurt Motor Show, is Peugeot's answer to the VW Golf and squarely in the everyman range. The company plans to produce 150,000 of the 308s for the European market in 2014 with the rest of the world at later date. It has a hard drive ahead to take on Volkswagen: last year the German auto giant sold 870,474 Golfs worldwide.

Picat stressed that the new 308 is "not the only weapon" in the French company's arsenal, noting that it is ramping up production of its new 2008. It had planned to make around 70,000 of the crossover vehicles each year, but has already pushed that number to over 100,000.

The interior of the new 308 has not been spared from Peugeot's push to the high end. Gone are the array of buttons and a large command screen instead dominates.

Carlos Da Silva of IHS Automotive says the new 308 looks much sleeker than the old model and he found the interior "elegant."

"Being able to compete and succeed in this arena would mean a lot to Peugeot, at least symbolically (to) express the fact that they are still in the racer and mean to stay a major player," he said in an analyst note.

"Given the current troubled situation ... Peugeot needs the 308 to be a success."

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