Execution, Execution, Execution - Enough for the long-term?

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2 Execution, Execution, Execution - Enough for the long-term? January PricewaterhouseCoopers. PricewaterhouseCoopers refers to the individual member firms of the world-wide PricewaterhouseCoopers organisation. All rights reserved.

3 PSA Strategic Summary The Upside and the Downside PSA Outlook Competitive Context Peak-to-peak Analysis Key Product Analysis Where from here (if anywhere)? Sources of Future Growth Supply Base The Extended Key Takeaways PricewaterhouseCoopers

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5 The King of Execution Product Focus Organisational and Product Focus Brings Benefits Volume and Mix Growth Slowing Competitors Coming PSA VBE leads in key AFX metrics Near top of pile in utilisation, high volume platform and engine use Pursued getting the basics right Brand follows product? Units sales growth, bottom line boosted PSA bucking global trend Margin growth from cost savings Can costs be ratcheted further? Threat to PSA s position rising Austerity brings focus

6 The Kings of Execution Share of Assembly Using HVPs 2002 VBE G10 Avg. 0% 10% 20% 30% 40% 50% 60% 70% Share of Assembly Using HVEs 2002 Upside VBE G10 Avg. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Global Capacity Utilization 2002 PSA G10 Avg. 70% 80% 90%

7 Product Focus Current success built on two pillars Execution and Product Success with product traceable to 306 and 406 Concentrated firstly on quality and value for money Citroen synonymous with VFM Peugeot growing quality Broadening of the product offering in burgeoning niches Rode the European diesel rise with best-in-class products

8 Organisational and Product Focus brings Benefits PSA Worldwide Sales (millions) PSA Automobile Division Revenues ( bill,) PSA Automobile Division Operating Margin ( bill.)

9 Volume and Mix Growth Slowing Operating profits are set to come under strain million profits from volume and mix improvements 2002 interims show profit improvement mainly from cost reductions New products unlikely to be killers Platform consolidation nearly complete New CapEx projects

10 Competitors Coming PSA leads but is that enough? Led the way for others Sound strategy and unwavering execution Others have more volume, brand breadth, geographic breadth Execute well - enough to curb PSA s growth plans Threat greater in austerity Concentration on fundamentals PSA approach equals austerity in face of gargantuan competition

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12 ,56,*,,, 012 /,.+,, -, -, )*+, " #$""" %$""" &$""" '$""" ("$""" 3"""4 (#$""" (%$""" (&$""" PSA a small, but focused player For PSA, size is not the ultimate criterion in the automotive industry products, organisation and agility are more important Brought short term success, but will it be enough for the long term? Benefited from hit products and buoyancy of domestic markets Product momentum sustainable? Major market slow down?

13 55 #$%&' Assembly Volume in 000s(VBE) Capacity Volume Utilization Millions of Units % Share Units (millions) " 34

14 755 3(4 Renault, #'& GM * $'+$ DCX Toyota Ford Hyundai GM VW RenNiss PSA Honda BMW * $'+$ Ford Toyota RenNiss VW PSA Honda DCX BMW Hyundai ($$) ($$) Demonstrates that competitor VBEs are ratcheting down PSA and VW s advantage in this dimension. Some will catch up completely and be in a position to leverage far greater volumes.

15 755 3#4, #-$ $ * $'+$ DCX Ford Renault 5.)7 8#""#.+ $ GM Toyota ($$) PSA VW * $'+$ Renault ($$) On the >750k count, PSA suffers, but has two major families on the boundaries of the mark. Including these (PSA II) is more telling but nevertheless PSA now joined by a cluster of firms DCX PSA Toyota Ford Honda GM Hyundai PSA II + VW

16 $%-''/$ GM GM * $'+$' G6 Ford Renault VW DCX G10 Toyota Hyundai PSA * $'+$' Renault Hyundai G6 Ford Toyota DCX G10 VW PSA Honda Industry +.$) BMW Industry BMW +.$) PSA will remain a highly effective competitor, but the quality of the competition will improve greatly as the G6 make greater operational sense of their alliances

17 PSA considered to be at the peak of its volume cycle Last peak was 1990 The company is the current king of execution in the industry No other VBE features in the top three of the key execution metrics of HVPs, HVEs or capacity utilisation PSA is at a strategic crossroads Hard-won competitive advantages are eroding Volume and mix growth will be harder to win in the future

18 ##$% $&#$ Peak-to-peak, model for model volumes are very similar Key driver for 2001 peak is incremental models A-B 1990 vs vs. 4 C 1990 vs vs. 6 D-E 1990 vs vs. 10 C-segment additions the key Peugeot Partner Xsara Picasso D-E fall demonstrates brand weakness despite incremental models

19 $% &&#$ The upside of the current peak PSA not nearly so reliant on Europe as it was RoW sales 1990 totalled 169,600 (7.7% of total) RoW sales 2001 totalled 587,300 (18.7% of total) #& )5

20 :+: #&#/6&$ * & &$* & # PSA follows French market PSA averages a 30% share of French market in past 10 years French market of PSA WE Output French market peaked 2001, decline forecast short- to medium-term Dip in PSA fortunes may not be as severe in past Reliance on French market weakening 36% share of total 1990, down to 26% in 2001

21 :+: Competitor action in key areas: Key product facing better competitors Picasso vs. Scenic II, Touran, C-Max M49s vs. Doblo, Transit Connect, SLW, Combo Diesel competitive edge eroding 206 ageing compared with rivals Premium brand incursion in volume market

22 ; +$;< " 8&%# 0&$ 9&$& :&9 " 9" Citroen C3 exception to the rule Key momentum and volume products will remain the same Important forthcoming products are all replacement Picasso 2005 Berlingo/Partner 2005 Xsara 2004 (C4) (facelift) Can PSA repeat the success of recent years with replacement product?

23 ;3) -4 +$;< " 8&%# 0: : :& 0&$ 9&$& 9" 9 Success going forwards more difficult than in past decade 3 of 2002 s effectively new entrants 3 of 1990 s top 5 (and today s equivalents) not as successful as predecessors In each case more competition Two much more successful than predecessor Doesn t have the incremental product going forwards that drove it in the 1990s

24 59"<= 5 -#&94 $ "= While 307 fundamentally a good product, two major factors in its favour +$;< = = C/D mainstream sedan volumes down Evolution of competition Pressure from premium manufacturers = 2001 launch date an advantage Bravo, Megane 95 Golf, Xsara 97 Astra, Focus %$ >$3&#%$

25 )11 * 6&% 8 )$#3>$ 4: 5,$%,#$% 0*5 3/& # " >. #9) (") &) &)?) ') 9) #) %) 9) Focused VBEs advantaged now Others integrating acquisitions and alliances Narrower VBEs all more profitable But in the future will they and PSA struggle to segment the market according to customer need? PSA has renewed focus on brand differentiation Citroen dilution reversing but mismatch between now and future Peugeot product focused

26 $&'3 $3 % output " 0 A A/B B C C/D D D/E E E/F F G & PSA Group Industry PSA in danger of becoming small car producer reliant on home market ie think Fiat.

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28 ,3(4 #0&$%33 5-#& &$ # PSA has to maintain its current focus on fundamental good product Brand will then follow Concentration on reviving Citroen brand 55% of growth from Peugeot The rediscovery of Citroen brand DNA will bring gentle growth Protecting PSA from Peugeot s marginal decline

29 ,3#4 8#$&'6##& &? Look outside West Europe and build on 2001 s 587k RoW sales Remarkable performance in Europe in 1990s Beginning process with expansion in Central Europe 50/50 joint venture with Toyota Cannibalisation issues in West Europe 83 0&. $ (&$.)# /7)# 300k solo facility in Slovak Republic Build sales in region Ease West Europe capacity

30 ,394 * #&* &7+ &?3 Product portfolio pretty full Little white space to operate in " '@ 5 -#& One area of interest is emerging Compact (C and C/D segment) SUVs Technical capability is an issue Little AWD experience Would have to partner Suits PSA corporate ethos Facilitate return to US? Established compact SUV market

31 0 83 " ) $$&#$&? *- > 5- &# ($%#& Compared with peers, PSA taking huge gamble on East Europe Two ventures in the region adding 500k units of capacity Taking on another VW bastion Toe to toe with VW in West Europe East Europe key element of recent VW expansion East Europe less high risk, less crowded than China? Prizes not so big, but more chance of winning given current competitive environment in region

32 .,&'$%& $$&$($%AB8 &%# / PSA s product portfolio doubleedged sword Less marketing costs, planning and integration complication Easier to compete against and benchmark Reliance on hit products lessening in the future Less risk of huge fall in volume More cost, but balanced by platform strategy Way behind the fragmentation of the G6

33 +34:1 King of execution has peaked in West Europe Little incremental growth achievable French market has peaked Diesel market increments will slow Competitor action in key areas But PSA can maintain status quo as a VBE in West Europe Maintain product focus and Citroen brand revival Grow as a global VBE Focus on dynamic emerging markets Enter compact SUV segment Could provide incremental volume in West Europe too

34 +34:1 Does it need to go anywhere? Yes Remain focused on the fundamentals of good product and execution models to be launched None of the 15 remaining likely to be killer product Look what it s brought so far: automobile division operating profit of 4.7 billion

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36 )B767 Supplier relations are central to PSA three strategic objectives: growth, innovation and profitability. PSA views innovation as a decisive factor in winning new customers Linked with this is a need to bring models to market as fast as possible PSA anticipates supplier relations becoming ever more important Product development times shorter More product launches Customer Expectations increasing More nameplates from less platforms Need to innovate more Fiercer global competition Prices and costs Globalisation

37 )B767 In this context views its relations as an extended enterprise with 5 key facets Platform policy Supplier integration into projects Functional specifications from PSA Modules PSA the integrator eg powertrains, steering, air con, seat frames, brakes, ICE. 30% of vehicle cost by 2004, underpins platform strategy (60%) Innovation Purchasing at PSA linked to Innovation and Engineering E-procurement Improve purchasing process; co-engineering; SCM

38 )B767 PSA s clearly defined platform and module strategy brings clear volume opportunities to suppliers but '& Ave Ave. *%# T1/C3/AO T5/B5 1,203, ,601 1,278,061 1,241,862 X4/X6/D2 273, ,474 2,112,843 2,915,398

39 Matthew Matthew Freeman: Freeman: Don t Don t understand understand this this are are your your dates dates right? right? )B767 only if you re already part of The Extended Enterprise 38&'0#$ * %38&38&' 0#$ 1& 1& 8 8 "

40 )B767 equally if you don t have a base in France " 1## $&$$$ 2? #'?D 1## #& 1## 6&$ ( 1& $ +$%C$ % &$ +

41 )B767 To try and foster innovation, which it believes is key to winning new customers PSA has linked with key suppliers and established Supplier Innovation Plans Increase role of OEMs Earlier involvement in product development Clarify and Simplify relations Share Knowledge Patent filing Temporary exclusivity

42 )B767 Supplier Innovation Plans Bosch Safety, passenger comfort, pollution control and fuel consumption Treves Passenger comfort, noise and safety Magneti Marelli Drivetrains, chassis modules, heating and cooling systems management, telematics, electrical and electronic equipment Pechiney Develop aluminium applications and long-term sourcing contract. Valeo Active safety and comfort Delphi Active and passive safety, comfort, onboard energy management.

43 )B767 The Focus on Innovation The Risks to PSA First mover status in innovation is not synonymous with competitive advantage But last mover disadvantages are real Loading product with innovative technology and features is no substitute Technology and feature innovation can amplify good basic product but is not the answer on its own Experience shown technology and feature innovation a competitive necessity but it does not confer sustainable competitive advantage an arms race

44 )B767 The Focus on Innovation The Risks to OEMs Why tie to one VBE? More secure volume opportunities with wider market Technology developed might not be immediately transferable to preferred customer Vehicle Manufacturers operate as virtual regional oligopolies Patents are not watertight, any real progress quickly wittled away On balance, PSA process beneficial to OEMs, but are incentives and benefits of innovation greater in a tied deal than in open market?

45 )B767 The Focus on Innovation Where to Innovate Low-cost production a key source of competitive advantage in the industry Can also make feature options more compelling1970s experience with Japanese. Process allowed them to fit items such as radios and carpets at the same invoiced price as competitor products without these options as standard. Process improvement cost improvement is as important as technical and product innovation

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47 ; PSA Key Success Factors Strategy & focus PSA has clearly defined strategy. Small, but focused. Reputation for product innovation Key factor remains product, product, product Right products at right time Powertrain expertise Supplier to industry Cooperation champion Project-specific collaboration How to Compete with PSA Product Hit products rather than strength across the product line Powertrain reputation can be challenged Brand Restricted brand portfolio No strong customer loyalty Key Supplier Opportunities International expansion Growth outside West Europe Joint venture with Toyota - PSA has responsibility for procurment Innovation key objective PSA looking to product features to deliver competitive advantage Collaboration to achieve objective

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