A customer looks at a Peugeot 308cc car at a PSA Peugeot Citroen showroom in Paris, France

PSA Peugeot Citroen, Europe’s second-largest carmaker, said it may have an operating loss of as much as 2 billion euros (US$2.8 billion) this year as sales decline and people buy smaller, less costly autos.

“Peugeot’s expected loss is roughly in line with our estimates and worse than the market consensus,” said Gianmarco Bonacina, an analyst at Equitasim in Milan with a “neutral” rating on the stock. Bonacina had predicted a 1.6 billion-euro loss and said the consensus was for a 1.3 billion-euro deficit.

European carmakers have suffered the worst sales slump in 15 years as the global recession deters people from making big-ticket purchases. So-called scrappage incentives have bolstered demand for smaller, greener autos like some of the models made by Peugeot while pushing down profit margins, Bonacina said.

Paris-based Peugeot, which said Tuesday it will sell about 500 million euros in convertible bonds and may increase that to 575 million euros, was trading up 2 percent at 19.68 euros as of 12:26 p.m. in the French capital. The stock, which earlier fell 4.6 percent, has gained 62 percent this year, the best performance on the nine-member Bloomberg Europe Autos Index. That values the carmaker at 4.61 billion euros.

Credit quality

Credit-default swaps on Peugeot widened to the highest since April 1, according to CMA DataVision prices at 8:55 a.m. in London. An increase signals deterioration in the perception of credit quality.

The extent of the loss will depend on the assistance the French government is able to offer the auto-industry and on the extent of support Peugeot provides to its own suppliers, it said in a statement Tuesday. The company has already received a 3 billion-euro loan from the French government.

“A number of uncertainties remain,” the carmaker said. “Whether or not government support programs will be pursued in 2010. If not, fourth-quarter production will be scaled back.”

Chief Executive Officer Philippe Varin, who took the top job on June 1, reshuffled the company’s top management last week, ousting Isabel

Marey-Semper as chief financial officer and putting the flagging Peugeot brand under the control of Jean-Marc Gales, who also runs Citroen.

Full-year earnings will also be affected by exchange rates, raw-material prices and the funds the two brands are able to commit to marketing, the company said Tuesday.

Volkswagen AG, Europe’s biggest automaker, said April 22 that full-year profit won’t meet the levels of previous years as deliveries slide. It’s still predicting positive earnings.

Turin, Italy-based Fiat SpA said April 23 that it was targeting earnings before interest, tax and other items of more than 1 billion euros. French No. 2 Renault SA said February 12 that it expects conditions to worsen this year.

Peugeot’s convertible bonds will be due in 2016, with money from the sale being used for “general financing needs” and future developments including three-cylinder, one-liter petrol engines and new plants in Russia and China. The notes can be handed over for stock when the shares rise 33 to 38 percent from the current price.

The bonds will pay a coupon between 50 basis points and 125 basis points higher than a reference rate based on the benchmark mid-swap rates for six and seven years.

Source: Bloomberg