PSA Faces Tough Road for 2014 Turnaround

PSA Peugeot Citroen hopes that a new CEO and a cash injection of €3 billion or more from the French government and China's Dongfeng Motor Group will revive the struggling carmaker this year. But the company faces stiff challenges, notes the Financial Times.

PSA hasn't generated positive cash flow since 2010. The company is expected to reduce its cash burn from about €1.3 billion in 2013 to €700 million this year, according to the FT.

PSA is projected to have about €9.8 billion in cash by midyear, so it isn't in imminent danger. But analysts point out that the company must soon stop spending more than it collects to avoid collapse. They also tell the FT that shareholders worry about their holdings being significantly diluted by the proposed Dongfeng deal, which could give the Chinese partner a 20% stake.

A Dongfeng investment will help PSA pay for developing new products needed to freshen its lineup by about 2017. But analysts tell the FT that a cash infusion and Dongfeng's help in accessing the Chinese market don't address PSA's lingering cost and overcapacity problems in Europe.

Nor is the company likely to significantly increase sales outside Europe fast enough to offset continuing losses in its home market. The FT concludes that PSA will face "a long and dangerous road" regardless of how much financial help it receives in 2014.