For Gefco, 2012 is turning out to be a year of significant transition. In February, parent company PSA Peugeot-Citroën announced that it was divesting (an as yet undisclosed) percentage of its ownership of the transport and logistics subsidiary in an effort to raise cash and support on-going investment in its automotive division. PSA intends to remain a long-term shareholder but “we no longer feel that we need to own 100% of Gefco,” said Phillipe Varin, chairman of the managing board of PSA.
The announcement followed poor results for PSA, which has been hurt by a slowdown in its main European markets, losing €92m ($120m) last year compared to a €621m profit in 2010. At the same time, Gefco has been making money while expanding globally. The logistics provider’s earnings grew more than 12.5% in 2011 to €233m with a margin of 5.9%. This has been helped by business from PSA as it reaches out into new markets–it is now selling more than 40% of its vehicles outside Europe and relying more on Gefco’s logistics services to move vehicles and parts–but the strong performance is also thanks to diversification outside the PSA Group. The company has been expanding in emerging markets, often well ahead of PSA’s automotive division, with business in India, South America, Russia and China.
Last year it acquired a 70% stake in Italy’s Mercurio Group, which has operations in India (Mercurio Pallia Logistics) and Argentina (BSM Transportes and SAM Transportes). It also announced a brand tie-up with Uniworld Logistics to provide inbound logistics for manufacturers in India. “The goal is to have organic growth but to develop in areas where we need to be stronger. It is less about targeting specific companies than it is about emphasising specific markets,” said Antoine Redier, vice president for vehicle logistics, in an interview with this magazine last year.
Further financial leeway outside the PSA Group could potentially serve Gefco well, both in attracting customers from outside the group who might otherwise worry about Gefco’s priorities, as well as in making independent investments. When the financial crisis bit at the end of 2008, for example, the carmaker’s woes forced Gefco to pull out of fledgling operations in markets like India and China to focus on core European markets.
While Gefco has made back much of this lost ground, these were difficult and frustrating decisions, according to sources at the company. They are now less likely to be repeated.
Gefco will continue to benefit from a strategic partnership with PSA in European and global markets, but it also stands to benefit from GM taking a 7% stake in PSA and its plans to establish a “strategic, commercial cooperation” with Gefco.
The carmakers are unwilling to comment on the specific opportunities. But as Gefco’s infrastructure and networks are largely formed, these can be implemented to GM/PSA’s advantage quite quickly.
According to consultants Frost & Sullivan, the extent to which GM and PSA combine distribution will depend on their current relationships in developing regions. “A first impression is that this could be a cost-effective way of gaining access to these markets,” said Frost & Sullivan analysts Martyn Briggs and Pietro Boggia.
A key challenge will be managing shipping cost compared to end-market positioning. “As markets start to develop and grow, there becomes a trade-off between shipping costs and where it is more efficient to produce the vehicle in that particular region,” they said.
However, any intentions that PSA or GM might have to benefit from one another’s and Gefco’s presence beyond Europe could be more of a long-term goal. “Even if they do insist on this, the [GM-PSA] alliance is first of all rooted in the fact that both PSA and Opel are at risk in Europe,” said Carlos Da Silva, senior market analyst for automotive analysis and forecasting at IHS Global Insight. “Having a major logistics player in-house is definitely an asset for any real development, in or outside Europe, but I don’t think that it is because [a brand] is good at logistics that it will sell more outside Europe. First it needs products that are going to be recognised by customers.”
Where the carmakers could benefit is in the consolidation of production and logistics in Western Europe, which is now characterised by overcapacity, allowing them to realise critical economies of scale.
Da Silva said there is a lot of potential in the exchanges relating to Russia, as an effect of the potential growth in that country. Gefco has several joint ventures in Russia, including with full service logistics provider Russian Transport Lines (RTL) and with rail freight container operator Transcontainer, as well as owning its own assets including those through its Algai subsidiary.
“The fact that [Russia] is quite a closed market–local production is supported and encouraged– does not mean that exchanges are limited to the Russian frontiers,” said Da Silva. “As you see with the new Kaluga factory belonging to PSA and Mitsubishi, this offers lots of business for logistics specialists, and Gefco is obviously the one that benefited most here.”
Gefco moves SKDs from PSA’s Vesoul plant in France to the Kaluga joint venture.
Gefco has not made any official comment on the consequences for it of these most recent developments, but sources at the company have said that the development of both the GM agreement and PSA’s intention to sell part of the company are extremely positive and should provide it considerable opportunities for expansion.