Peugeot demonstrates that logistics is life and death in the car industry

If any proof were needed the recent experience of PSA Peugeot-Citroen is evidence that logistics is fundamental to profitability in the car industry.

The French car manufacturer has staged a recovery from a near-death experience in 2012-13, recording a profit in the first half of this year. A big part of this revival has been an increase in the number of cars sold, however one of the other key drivers behind PSA’s recovery has been a tighter grip on logistics.

In particular the company has taken hold of its stock of finished vehicles. This had reached disastrous proportions with, in 2012, the company having a stock of 225,000 vehicles unsold, excluding the 243,000 cars held at its dealerships. The impact of this on cash-flow alone was enormous, draining the company of liquidity and driving-up finance costs. Yet by June of this year finished vehicle stock had been cut to 170,000 vehicles although dealerships still hold 236,000 cars. This resulted in an improvement in cash flow of €346m, a large part of an over €1bn improvement in the cash balance of the company.

In addition factory utilisation rates have increased from 72% in 2013 to 84% in 2014 hugely reducing the costs-per-car manufactured. PSA Peugeot-Citroen also appears to be flexing its supply chain with a big shift in terms of ‘receivables and payables’ which is also having a highly beneficial effect on its cash-flow. This has been complemented by a focus on reducing in-bound inventory and ‘work-in-progress’.

It is quite remarkable that PSA Peugeot-Citroen had allowed itself to get into such a poor condition, but that it did is a reminder that not all vehicle manufacturers have the quality of operations that they might have. For almost two decades the car industry has been trying to manage finished vehicle inventory, yet despite its power to threaten the finances of even the largest companies some still seem incapable of imposing the basic discipline to not make cars they cannot sell.