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Peugeot Announces New CEO

PSA Peugeot Citroen (UG), a cash-strapped company that has been hit as hard as any during a six-year decline in auto sales through Europe, announced today that it would be replacing its chief executive officer next year. The search was called off when it was able to convince Carlos Tavares, the former COO for rival Renault SA (EPA:RNO), to take the reins in the hope of turning the company around beginning sometime next year. No exact date was given, only that Tavares would join the company at the beginning of 2014.

Who is Carlos Tavares?

Tavares will be the third CEO at Renault SA (EPA:RNO) in the last seven years and clearly has his work cut out for him. Immediately, Tavares will need to stop spending, return to profit, and expand out of Europe where the company’s fortunes have been tied for far too long.

Mr. Tavaras stepped down from his position at Renault SA (EPA:RNO) just a few months ago following an interview with Bloomberg that may have been a touch too candid. Tavaras made it clear in the interview that he was hoping to lead another automaker with the understanding that Renault’s present CEO, Carlos Ghosn, wasn’t going anywhere in the near-term. It took only two weeks from the publication of the interview with Bloomberg for Tavaras to walk away from his job.

“He is a highly regarded manager,” said Jose Asumendi, a London-based automotive analyst at JPMorgan Chase & Co. (NYSE:JPM). “After working for some time with Varin to understand the dynamics of the group, he would be an excellent candidate to lead the transformation.”

Peugeot SA (EPA:UG)’s stock price is not a window into the troubled company. The company has seen a stock increase of 98% this year.

Peugeot’s challenges

Tavares is not wanting for automobile experience, having spent over 30 years at Renault and its affiliate Nissan. Tavaras will immediately be charged with securing a capital increase of no less than 3 billion euros with the French government and Chinese automaker Dongfeng as we reported last month.

That deal is in jeopardy as Dongfeng seems more interested in a stake of around 10% rather than the proposed 20% that both Dongfeng and the French government would take after the capital infusion. But it needs to get sorted if Peugeot SA (EPA:UG) is to rely less on the European market for its cars and trucks.

“To get Tavares would be attractive,” Erich Hauser, a London-based automotive analyst with International Strategy & Investment Group, said in an e-mail to Bloomberg. “Firstly, Tavares is a real ‘car guy.’ Secondly, he spent his career at Renault-Nissan and perhaps this is being seen as a potential role model for a Dongfeng-PSA alliance.”

Peugeot SA (EPA:UG) is hemorrhaging money at present where under Tavares, Renault recently reported unexpected growth in profits as Tavares raised car prices and cut labor costs.

“This regular changing of CEOs and the overall instability of the management board over the last few years is more proof of the lack of clarity,” Florent Couvreur, an analyst at CM-CIC Securities who recommends selling the shares, said today. “Peugeot SA (EPA:UG) is a enormous mammoth that will require time to evolve.”