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Financially-troubled Peugeot-Citroen of France, Europe’s second biggest car company in terms of sales, is making slow progress toward profitability, and may even edge into the black this year.

Peugeot-Citroen, bailed out earlier this year by a combination of the French government and Dongfeng Motor of China, lies second in the West European market with a share of 11.1 percent in the first nine months of the year. VW of Germany leads with close to 25 percent. Peugeot, and its Citroen subsidiary has been boosted by sales of its 308 hatchback, 2008 small SUV, and the Citroen Picasso minivan.

The Fitch Ratings agency believes Peugeot is on track to breakeven in 2014 and gradually improve to small profits in 2015 and 2016, although it cautions that the recovery is fragile.

One criticism of Peugeot, that it was overly dependent on Europe, could well swing in its favor as any recovery will bring it greater gains than the competition. Unfortunately for Peugeot, the health of the European recovery is beginning to look doubtful. At the same time many emerging markets, where Peugeot is a belated contender, are entering troubled times.

“Peugeot’s core automotive operations’ profitability will increase to around breakeven in 2014 and improve further to above one percent in 2015 and two percent in 2016, from a negative 2.9 percent in 2013 and a negative 3.9 percent in 2012,” Fitch said in a report.

But this might be in jeopardy if the economic recovery stalls.

“The improvement remains fragile and could be derailed if the operating environment deteriorates more than expected, notably outside of Europe where the group is trying to diversify further, and sales do not increase as we assume. The benefits of cost cutting actions would also be absorbed by higher-than-planned investments or higher-than-expected working capital needs. We currently project group revenue to increase by 2.5 percent in 2015 and more than five percent in 2016, which should benefit operating leverage and, in turn, profitability,” the report said.

“We also believe that the current recovery of the European automotive market, to which Peugeot remains highly exposed, will mitigate the weakness in other markets and will support a gradual rebound of earnings and cash generation,” Fitch said.

Peugeot lost more than $8.9 billion between 2012 and 2013.

Family controlled Peugeot was bailed out earlier this year by the French state and Dongfeng Motor taking 14 percent stakes in the company. The deal diluted the Peugeot family stake to 14 percent also. CEO Carlos Tavares’ turnaround plan called “Back in the Race” seeks a two percent operating profit margin by 2018 rising to five percent between 2019 and 2023.

Fitch is concerned by this new ownership structure.

“The new shareholding may present some renewed challenges to coordinate the various shareholders’ interest, which could be divergent.”

Meanwhile, Peugeot-Citroen announced sales in the first nine months rose 1.6 percent to just over $15.5 billion. Some French companies like Peugeot-Citroen, and Renault only report profits after the half or full year.

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