Gefco ready to buy and expand

Gefco, the logistics division of the PSA Peugeot-Citroën Group, is pushing to expand and diversify its vehicle logistics operations and is targeting further acquisitions in European and global markets. The company, which has experienced record growth and profits this year, is aiming to reduce the proportion of PSA business in its vehicle logistics to less than 50%.

 

Vice president for vehicle logistics, Antoine Redier, told Automotive Logistics that Gefco would invest in other companies to both diversify and widen its market presence. “There are [acquisitions] targets,” he said, declining to specify further except that Gefco was out to grow rather than to destroy competitors.

 

“We don’t view ourselves as a predator,” he said. “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.”

 

Gefco has already been on the acquisition trail this year, acquiring a 70% stake in Italy’s Mercurio Group, a vehicle logistics company with operations in global markets such as India and South America. 

 

Redier’s comments mirror somewhat those by fellow Paris-based competitor, Groupe CAT, which told Automotive Logistics that it is also seeking acquisitions as it expands and diversifies its customer base from that of its former owner, Renault (http://www.automotivelogisticsmagazine.com/NewsItem.aspx?aid=1113#story).

 

The chances for further investment may well increase as Gefco continues to produce record results. In the PSA Group’s half year earnings report released earlier this month, Gefco outperformed the automotive division in its growth rate for revenue and operating profit. Gefco saw its first half revenue increase by 17.6% to more than €2 billion ($2.8 billion), while operating income was up 17.2% to €143m. According to the report, the Mercurio purchase added about €46m in operating margin.

 

The automotive division’s operating income, by contrast, fell 23% to €405m in the first half, and PSA said that it could slip into the red in the second half (http://www.automotivelogisticsmagazine.com/NewsItem.aspx?aid=1111#story). Indeed, risks to the wider PSA Group could slowdown Gefco’s expansion, particularly as markets are rattled by the debt crisis in Europe and the potential for a double-dip recession. While PSA has become more global, selling 38% of its vehicles outside Europe in the first six months of 2011 (with Gefco following its expansion), the group is nevertheless concentrated in France, which has declined following the end of its incentive programme, and heavily exposed to weak markets in Western Europe such as the UK, Spain and Portugal.

 

Diversification from its owner as a customer is now a major target for Gefco.

 

In most cases, Gefco can be considered the French carmaker’s vehicle logistics arm, where it is responsible for the procurement, network and organisation of PSA’s vehicle flows. But compared to Gefco’s other business units, such as inbound logistics, the proportion of PSA to non-PSA revenue is higher for outbound. In 2010, for example, non-PSA business represented about 15-18% of outbound turnover, compared to around 36% across all business units.

 

But Gefco increased the proportion of non-PSA outbound business this year to 25%, according to Redier, when it took control of the Mercurio Group. Mercurio already has a significant presence in India, Southeast Asia and South America, all firmly set in Gefco’s expansion targets.

 

“The reasoning behind the Mercurio acquisition was first to secure capacity. Secondly, Mercurio is strong where we are interested in the future,” says Redier. “For example, Gefco was already working with Mercurio subsidiaries in South America. There will be further developments of Mercurio in Southeast Asia and this is exactly the direction that Gefco wants to go.”

 

Gefco secured some significant local capacity with the purchase. In India, for example, Gefco is now in control of the Mercurio Pallia joint venture, an important player on the market with around 550 trucks. Furthermore, Redier anticipates that if the company grows with the Indian market, the truck fleet should increase by 100 units per year over the next five years.

 

In South America, meanwhile, the acquisition strengthens Gefco’s Argentine operations, notably because its primary truck operator, BSM, is a Mercurio subsidiary. “It means that we are now at home in Argentina,” said Redier, pointing out that BSM works with other carmakers besides PSA.

 

Redier acknowledged that while PSA is fundamentally a car manufacturer and thus focuses most of its investments on vehicle technology rather than purchasing transport assets and companies, the carmaker is nevertheless open to investment for logistics. “The Mercurio acquisition was a sure sign that PSA is willing to invest,” he said.

 

Besides expansion in emerging markets, such as its truck fleet in India, or a new vehicle compound outside Moscow, Gefco is also investing in targeted assets within its fleet and operations in Europe. In France, for example, the company recently upgraded 70% of its trucks to Euro 5, and the company has also invested in renewing its IT system in Europe for storage and transport, which should be finished in 2012. In 2013, Gefco will renew its audit and invoice system.

 

In terms of expanding its transport fleet, Gefco appears to be showing caution. Redier said that recently scrapped about 800 older rail wagons, but that it will trial a new, more flexible prototype this year to invest in (the current fleet is now 3,600 wagons). For road capacity, Redier said that he did not see much concern for capacity shortages in shrinking or slugging markets, like France, the UK, Spain or Italy, but he acknowledged that many OEMs have pushed providers to the edge of survival with low rates, and predicted that the balance will once again turn.

 

“At some point, the market will regulate once there is capacity missing–as we’re seeing in Germany and parts of Central Europe–but overall, we are not there yet,” he said.

 

See the forthcoming October-December 2011 issue of Finished Vehicle Logistics for a full-length feature of Gefco’s vehicle logistics operations.