Distribution: a new frontier for PSA?

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PSA's brilliant results refer to a "Tavares method", the success of which is indexed to a certain harshness for the employees first of all, but also for the other "stakeholders" and, in particular, for the suppliers. As the company extends its offensive beyond the product to take a very close interest in the business of distribution networks, the risk of a potentially problematic future for them becomes increasingly tangible. 
 
Even the current pandemic does not seem likely to affect the success of PSA, which is taking advantage of its strategy of lowering its break-even point to maintain its pricing power and profitability in the crisis. As Florence Lagarde noted on Friday, P. de Rovira is very explicit on this subject: PSA intends to "choose its distribution channels" and favour the most profitable mixes even if it means letting volumes slip and losing customers.
 
The financial copy that this makes it possible to give at the end of the quarter review is brilliant. It obviously has a counterpart in terms of hours worked in the factories and the short-time working schemes set up by the States favour this strategy by socialising the cost of this flexibility: basically, permanent contracts can be managed here like temporary workers; when their work is not necessary, you don't need them and you don't have to pay for it any more.
These arrangements are also available to tier 1, 2 or 3 suppliers when they are located in countries that have set them up and limit the economic impact that reductions in volumes delivered to the manufacturer would have in their absence. In spite of this, many of them still find themselves below their break-even points. Indeed, we know the efforts that PSA purchases require of them on prices in order to be included in the list of original equipment suppliers. They agree to this on the basis of hypotheses on the volumes delivered, which will obviously not be in line with the reality of 2020. 
As A.-G. Verdevoye writes in Challenges: "It's tough at PSA. And the number of executives who want to leave the company is extremely high, as evidenced by the number of CVs received by equipment manufacturers or Renault". It's hard for the management because the required performances are very high. It's hard, even very hard for the suppliers, who were under very strong pressure when the volumes to be delivered were on many models on the rise and who are now in many cases facing significant drops.
 
It is also likely to be harder and harder for the networks because the PSA offensive and its willingness to rationalise downstream and go on the offensive in the distribution of VN, VO and PR models is proving to be increasingly strong. In the same way that Covid decided to systematise teleworking and thus to optimise the square metres of office space for rent, the pandemic is boosting the digitalisation of sales and PSA thinks it can perpetuate the phenomenon and draw the consequences in terms of reformatting its networks and reducing its distribution costs.
 
Carlos Tavares makes no secret of the fact: the digitisation of customer routes for new vehicles and used cars should, as it accelerates, make it possible to make considerable savings and not have to spend so much to ensure his presence with customers. It can also make it possible to diversify the channels through which they are reached.
From this point of view, the test balloon launched for the distribution of the Citroën Ami with Free2Move - to offer it as a car-sharing car - and the FNAC and Darty - to sell it - may well not be anecdotal.
PSA is thus indicating to its networks that they are not, or no longer, the only ones able to take on this role. The approach is already the one that prevails in terms of second-hand vehicles: to ensure its growth in volume in this field and to ensure that the associated profits go into the accounts of the manufacturer-supplier of mobility rather than those of its distributors, PSA is not content with launching Spoticar to reorganise its sales under labels in the networks of its main brands and at Eurorepar.
 
PSA also leans on Aramis (acquired in 2016) and thus clearly indicates to the networks that, in this field too, they are no longer the only interlocutors of legitimate customers from the point of view of "their" manufacturer.  
It is in this perspective that one should no doubt also read what happened this summer when PSA Retail announced the closure of its eleven Parisian establishments representing 21% of the surface area of the plate (45,600 m2 out of an initial total of 218. 000 m2 developed) and employing 255 people on permanent contracts (i.e. 20% of the plate's workforce): in the same way that it is necessary to "select the most profitable channels", it would be advisable to adjust the map of its local representations by integrating multi-branding, digital alternatives and the possibility - as is the case for Ami - of possibly leaning on Eurorepar to provide AV.
 
Beyond the avoided cost of land, which is particularly sensitive in large metropolises - where the constructor is often the only conceivable "investor" -, pushing digital as far as possible in the customer journey in VN, VO and AV also makes it possible - the networks have understood this - to make the customer relationship a relationship that is first of all a client-constructor relationship and only then a client-distributor or client-repairer relationship.
Thus, recently, the Groupement des Agents Automobiles Peugeot refused to oblige its members to automatically send the data generated by their DMS to the brand that would manage all their customer data. Its president, Florence Gete, who describes the agents as "non-franchised, therefore non-servised", expressed herself on the question in these terms: "There is no question of delivering our business nor of being excluded from the manufacturer's digital path. Data is the future of our businesses. It is in everyone's interest to work together because Peugeot's striking power combined with our territorial anchoring is a real strength".
 
It is indeed not certain that at PSA - concerning the sales of Peugeot or Spoticar vehicles as well as after-sales - we hear it from this ear. The debates underway in Brussels on the renegotiation of the exemption, which we will come back to later, will show this: for manufacturers, digitalisation must make it possible to regain control, to do without the network in an increasing number of cases and/or to lean on it to ensure a delivery or service already sold by it and/or to manage a lead generated centrally and sold to the dealership or agency. In all cases, the distribution of value is no longer the same.
 
Tavares' hard method for the downstream had begun to take shape some time ago when it came to selecting those businesses that could continue to be present in the old and new PR business structured around Distrigo plates. With the rise in power of the central VO business and the digital strategy on the VN, these are becoming clearer and distributors who are for the moment quite happy to distribute the ranges of the four brands could quickly understand that Carlos Tavares' successes are often achieved at the expense of certain "partners".
 
 
 
 
 
 

The weekly column by Bernard Jullien is also on www.autoactu.com.

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