Running out of road

MODERN cars are exceptionally reliable. The same cannot be said for many carmakers. PSA Peugeot-Citroën is the latest to suffer a breakdown. On February 13th the French firm announced a record annual loss of €5 billion ($6.4 billion), mainly the result of huge write-downs of the value of assets across the entire company. It also lost money making cars.

Peugeot’s bosses reckon that its European sales will fall by 3-5% this year, and do not expect a recovery soon. The continent has too many car factories, but governments are reluctant to allow carmakers to close them. And Peugeot, like its struggling rivals Fiat, Renault and Ford, is battling a three-way attack on its already declining market share.

Volkswagen has used its immense economies of scale to offer Europeans fine cars at reasonable prices. Hyundai-Kia and other budget Asian car firms are grabbing share at the bottom and are moving upmarket. Even Germany’s luxury carmakers, BMW and Mercedes-Benz, are turning out a wider range of the sort of smaller cars that are Peugeot’s biggest sellers.

Peugeot’s family owners have patriotically kept 40% of production in France, where prickly unions and a Socialist government make factory closures and job cuts difficult. Renault, a French rival, has built more factories in lower-cost countries; it makes only a quarter of its cars in France.

Renault has another buffer: its long partnership with Japan’s Nissan. Fiat is held up by Chrysler, of which it is the main shareholder. Peugeot lacks a supportive partner. A cost-sharing alliance with Opel-Vauxhall, GM’s battered European division, announced a year ago, has achieved little yet. A merger between the two might make sense, but unions and politicians would oppose it.

Peugeot’s cars have improved: the 208 supermini and Citroën’s DS range are nifty motors. The firm has a sizeable cash pile and a government apparently willing to prop it up. Last October French taxpayers handed over €7 billion and rumour has it that the state might take a stake. But can it really keep Peugeot running for ever?