Stellantis N.V. (STLAM) Earnings Call Transcript & Summary

Hello, and welcome to the Groupe PSA First Quarter 2020 Revenue Presentation. [Operator Instructions] I am now handing over to your host, Philippe de Rovira, CFO, to begin today's conference. Thank you.

Yes. Thank you. Good morning to all of you, and thank you for joining the first quarter revenue call of Groupe PSA. This first quarter has been divided in 2 periods. In January and February, the group was running at full speed and achieved, in terms of financial results, the best first 2 months ever. At the end of February, we had also a record order book. Thanks to the big success of our new launches, and in particular, the new Peugeot 208, the new Peugeot 2008 and the new Corsa. In March, [indiscernible] completely changed due to the coronavirus pandemic and PSA worldwide volumes have been [ divided by ] 2 due to the strong decrease of the European market. The group has reacted very fast in order to protect its employees and to cut its cash out and has taken the necessary actions in terms of liquidity. At the end of March, the total liquidity of the group, including Faurecia, stood at more than EUR 19.4 billion. And this does not take into account the new EUR 3 billion undrawn syndicated credit line very early April for the Automotive division. And it does not take into account the new club deal of EUR 800 million announced by Faurecia last week. We are now focusing on preparing the rebound of our activities, both on the sales side and on the production side. Let's now have a look at our results in more detail in the next slides. So moving to Page 3. Worldwide sales were down 29% in Q1 2020, with obviously a very strong hit of the current COVID-19 crisis in all automotive markets. China, where the virus started, as seen, this auto market dropped by nearly 50% in Q1, and the group sales were down 78%. In Europe, the market was down 26% at the end of March, and the group sales were down 30% as we suffered from a very unfavorable market mix in March with very low activity in France and Spain. As announced at the end of February, during the full year call, the group was CO2-compliant in January and continued to be compliant in both February and March with 6% of LEV, fully in line with our expectations. The COVID-19 crisis does not change our very good position in terms of CO2 compliance. In Middle East Africa, the group was able to grow its volumes by 44%, thanks to a significant rebound in Turkey compared to a low Q1 2019. After closing its production sites in China, the group was very reactive in closing all its European plants in order to control its inventories and protect its cash. In Europe, we announced as soon as March 16 that all our plants in Europe would stop production. In the last weeks, the group has taken radical measures to drastically cut its cash out. Number of temporary workers has been sharply reduced from 7,000 at the end of February to 700 at the end of March. Short time work has been massively deployed and will be extended in the coming days to 90% of our employees in Europe, and we fully use the government's schemes to alleviate the cost of wages. We have also made the most of all measures to postpone all cash out vis-à-vis the European states. For example, for March and April, the payment of taxes has been reduced by 78%, and most social charges have been postponed in Europe. We have also adapted our R&D CapEx to the new context. So these costs should remain close to 9% on a full year basis and in any case, remain a 1-digit percentage point of auto revenue. We have cut drastically marketing expenses by 90%. The only remaining expenses in marketing are dedicated on digital expenses. So in a nutshell, we do not leave any stone unturned when it comes to cut cash out. Let's have a look at the stock situation on Slide #4. As I mentioned, the group has been very reactive to stop production in European plants. And on top of that, before the crisis, the sales dynamics was very good in Europe, especially for PCD. As a result, the level of inventory at the end of March was slightly below the level of last year in spite of the very low sales in March. As of today, the group is fully ready to relaunch production. We have worked on each side on a very strict house procedure to be respected in order to allow the restart. But we absolutely keep in mind that it is crucial to relaunch the production at a reason that is consistent with the level of demand. On Slide #5, we move on to group revenue, which decreased by 15.6% versus last year at EUR 15.2 billion in Q1 2020. Automotive division revenue was down 15.7% year-on-year at EUR 11.9 billion. At the end of February, revenues of the Auto division were up, driven by the product mix, thanks to the success of our new launches. But of course, the month of March took a big toll on the Q1 revenues. Faurecia, that published already its sales -- well, so Faurecia revenue was down 13.5% at EUR 3.7 billion. The good news from Faurecia is that in April, the level of business in China is clearly improving. On Slide #6, we present the Automotive division revenue bridge. The decrease of auto revenue was obviously mainly driven by the negative effect of the sharp volume drop sales in March. This effect was partially offset by a very strong and sound product mix, driven by the success of the last launches of the group, in particular, as I mentioned before, the new Peugeot 208, the 2008 and the new Opel Corsa. The new Opel Corsa was the top selling model of the group in Q1, which is very positive for Opel and for the group in general. These cars are all available with a full electric version, which contributes positively as well and enable the group to be by far CO2 compliant in Q1. The order book for those 3 new models is very high, which gives us a lot of ambitions to prepare the rebound in the rest of the year. The large renewal of the B segment models prior to the crisis is a key asset. The other positive impact comes from the bucket orders, which is linked to the reduction of the mix of back buy (sic) [ buyback ] sales versus last year. Last but not least, pricing remained a positive impact in Q1, offsetting the FX negative impact mainly coming from the Argentinian peso. And as announced in February 2020, sales to partners were close to 0. On Slide #7, you will see our new market outlook. Of course, there are many different scenarios possible, and they will depend on the scale and duration of the current crisis as well as the measures taken by the countries concerned. Our market outlook is now minus 25% for the European market. Our internal liquidity stress case is designed to make Automotive division prepared to resist a much more brutal crisis. As for internal purpose, we have used an assumption of a market decrease of more than 50%, which would be the worst market in the last 50 years, going below the level of 1970 and 1974. However, when we read analysts and rating agencies and the announcements of the main governments in Europe, minus 25% seems a reasonable or even conservative forecast. Of course, we remain prepared to quickly update our outlook in the coming weeks when the visibility of the situation increases. We also now forecast the Chinese market to fall by 10%. It is to be noted that the Chinese market has shown [indiscernible] covered in the last weeks. And lastly, we forecast a drop of the market by 25% in Latin America and by 20% in Russia. Operational outlook is unchanged. So 3 points to conclude before answering your questions. First point, before the crisis, Groupe PSA had achieved the best January and February's financial results ever, in particular, thanks to product mix and an excellent management of CO2. Second point, we have reacted very quickly to the crisis by strengthening liquidity and cutting drastically any cash out. Let's have in mind that all the work done in the past years to reduce the breakeven point helps and that we have no bond or debt to reimburse in 2020. Third point, we are now preparing the rebound. The restart of the production will be done, applying very strict house procedures and will be consistent with the growth of the demand. And I'm now ready to answer your questions.

[Operator Instructions] The first question comes from the line of Thomas Besson from Kepler.

It's Thomas Besson from Kepler Cheuvreux. I have 2 questions and a clarification, maybe. So I'll start with the clarification. There has been a number of reports around comments Mr. Tavares and others made to the AFP about 10 days ago, notably questions about the payment of Euro and FCA's dividend and the possibility of changes in the terms of the agreement. Can you confirm that this is effectively reflecting your view in terms of the prospects of the merger and possible changes in the term? That's the clarification. The questions now. First one, on the margin guidance. You keep the 3-year average margin guidance. Would it be excessive from us to expect you to tell us whether you think you can reach this low level for the year? Or do you think it's effectively needed to keep it as an average for 3 year, which would imply a negative operating margin for 2020? And lastly, on your comments on CO2 compliance, you had a diesel share, which was at a very high level in Q1, so it helped, obviously, a lot. Do you think you can keep that once operations restart in Europe or do you think we'll need to have a higher mix of LEV cars for you to meet the CO2 guidelines for the year?

Okay. Well, thanks, Thomas, for your 3 questions. If I start with a clarification, I have seen that there were market rumors about a spokesman that I would have said something to AFP, that's what you're alluding to. What I can tell you, there has been absolutely no comment by the group about the financial terms of the deal. So it's clearly rumors of -- market rumors. On your second point, yes, we've maintained the 4.5% average. Concerning 2020 alone, the fact is it's so difficult to make a forecast about the market that -- well, it's very difficult to answer your question. What you can have in mind is we've mentioned last year for the full year results, but our breakeven point is approximately at 50% of the volumes of last year. So I don't see how it could turn negative, as you were questioning in terms of the recurring operating margin. Of course, as I was mentioning when I gave the market outlook, all that remains extremely fragile in terms of hypothesis because the reality is nobody knows what will be the outcome of this crisis. On the third point about CO2 and diesel, well, it's fair to say that the diesel share has been quite high. What is interesting to see is after a big drop in the last year of diesel, in the last 6 months of 2019 and it has been continuing in 2020, customers, despite all the diesel bashing have apparently well understood that diesel has a good advantage in terms of consumption, so it helps their wallet. And at the end, the customer is very interested in the cost of -- total cost of usage of his car. But it's also to be noted that even with the diesel share that would have been significantly lower. And you remember that in our planning, we have taken a 10% diesel market share hypothesis. Even with this hypothesis, we would have been compliant in Q1. So it shows that our planning strategy in terms of CO2 is extremely robust.

The next question comes from the line of José Asumendi from JPMorgan.

A couple of questions, please. Can you help us a little bit on your thinking process around working capital, especially into the second quarter? A little bit if you can, a best case and a worst-case scenario or if you can just comment a little bit around payables, receivables and inventories, how you think about this trend into the second quarter? And any factoring of receivables that could be a burden into Q2? And as a follow-up on that, how quickly this factoring of receivables can it turn around again as an inflow in the balance sheet? So that will be the first block. Second one, please. Second quarter inventory data, I mean your inventory data for Q1 looks solid. But the market seems to be, I think, into Q2, there is a risk of basically building up inventories. What do you think are the risks into Q2 overall for the industry? What is Peugeot doing to avoid a high level of inventories? I hear from dealers that they're going to be destocking quite aggressively during the month of June, if they can, high level of incentives. Any comments how are you getting ready for that -- for the second quarter, please? And then the third point, that product mix in Q1, can you just explain again how do you manage to improve so much the product mix? And is this sustainable also over the coming quarters? Because that product mix is quite phenomenal after the trend you showed already over the last 3 years.

Well, maybe I start with the last question about product mix. You remember that in what we've called the core model strategy, we've got a strategy in which the number of models are reduced, but there is also something very important is we pay a lot of attention to have regular launches, which is very different from what we had done in the past in PCD or what happened in Opel Vauxhall, which means that there is frequent -- well, each year, you've got renewal of the portfolio. And as we work hard on the cost of our cars, when we renew the car typically, and that's what's happening with the new Corsa compared to the old one. Well, the cost of the new car is lower than the cost of the previous car, which means that we generate mechanically based on the cost, a higher margin, not talking about the fact that a new car is selling at a better price. So basically, the product mix effect is due to this effect of substitution of all cars by new cars. And in this particular case, the new Corsa is a very big difference compared to the old one. It's a big difference because the old one was extremely old, in fact. And second, it's a big difference because we have the benefit of putting all the B segments of the Groupe PSA on the same platform. So the purchasing efficiency for the new Corsa, the new 208 is extremely high compared to what we were doing, and that is clearly supporting the product mix. We've got also the full year effect of some cars launched last year, which is benefiting for us. And last, I would say, on the LEV cars, we've sold them with a very reasonable profit, much higher than my expectations, to be clear. And this is also positive on the product mix, given the -- well, on the sales and revenue side and not on the margin side to be -- but it appears on the sales and revenue bridge in the product mix as mentioned. On your other questions, which are both, in fact, for me on working capital. Well, to build up, what is the risk on inventories? Well, there is a risk in inventories if we don't manage correctly the flow between production and sales. That's why I was saying in my comments that what is very important is to manage the ramp-up of production in a way that is consistent with the ramp-up of demand. So we are prepared to restart of our plants. You've seen that we've signed agreements with our unions about the safety procedures and everything is well prepared. But the question is what is the speed in which we ramp up because we definitely want to avoid building more inventories that's what we have. We will be helped by the fact that we entered the crisis with a huge order book. And the good news at this stage is, except for short-term rental companies, except for that, we do not see cancellation of orders at that stage. After that -- so for Q2, what is very important is ramp-up of production consistent with sales; selling and delivering as fast as we can the order book, which means that we will pay a lot of attention in production to have production dedicated as much as we can to serving the orders and to avoid to have a ratio of production to start -- build to stock that is high. So we will focus on having built to order very high. Last point was about the payables. Well, on H1 -- Q2 and H1, the level of working capital will be extremely dependent on the level of production of May and June because as we know, we pay most of our suppliers at 60 days, in some countries a bit more, but let's say, to make it simple, it's a bit more than 60 days. So if the level of production is high in May and especially in June, well, there will not be a huge effect compared to November, December. But at that stage, nobody knows what is the scenario. So it's difficult to say what will be the final working capital effect. And clearly, the payable -- among the 3 factors, payable inventories and receivable are the most volatile one in the coming 3 months. I hope it helps.

Just one little follow-up, please. You have not defined yet when you're going to restart production in Europe, have you or have you set up already a date to that?

No. We've not announced anything. We are ready, if need be. But it's important to have the dealers opened and to have a sales activity before we push the button. Else, we would build inventories. And as you've seen in the slide, the level of inventories at the end of March were at the same level as last year with less group inventories than last year, 30,000 cars. So in this context, it's not a bad situation to start with, on the contrary. And that in spite of the fact that sales in the second part of March have been very low. And we need to use this good starting point to control well the inventories in April, May, June, which means probably to sell more before then we produce.

The next question comes from the line of Gaetan Toulemonde from Deutsche Bank.

It's Gaetan speaking. At the beginning of your presentation, your speech, you gave some ideas about cost cutting measures. Can you put some numbers behind that? Because I'm not sure that I heard properly all those numbers. And in those numbers, there is a portion which is variable, i.e., when you shut down the production and part of those wages are paid by the government. But when the production is going to ramp up again, those measures or those costs will be back at PSA again. So my question is simple is that order of magnitude of those cost savings and which portion is kind of structural and which portion will reverse in the coming months when the production would start?

Well, when production restarts, I mean, we are -- when production restarts, we take the assumption, as mentioned before, that if we restart production is because we are selling cars. So basically, this group is generating a lot of cash per car sold. So when the production restarts, it's because we sell with a good profit. So -- I mean when production restart, we should come back to cost, well, relatively similar to what we had before. If you take the assumption that things come back to where they were before. Else, we will adapt the costs to the new pattern in terms of volumes, but it's a bit difficult to give a number. It's so dependent on when you -- on what you -- on the hypothesis of what you -- or the volumes that you capture. Maybe what I can tell you is in a period of full crisis, the only thing -- let's say, in a period when you've got 0 volumes, the only thing that I consider the must pay, basically, excluding the question of payables, but -- is the wages. And the wages, you remember that we communicated on the wages divided by revenue on the manufacturer side. But to make it simple for the Auto division, it's -- the normal pattern is EUR 550 million per month. And this, before taking into account the measures of -- the different measures by the government, which means a short-term -- short time work and deferral of social charges. So you could consider that 2/3 of this number in a period when you don't have any activity is reasonable. I hope it helps you.

Yes. Okay. So if I understand well, we use EUR 550 million labor cost a month. And during that period of confinement, which is probably 2 months, it's supported by the government and not by you. And so that's very clear. But the other expenses, advertising or whatever, is that any numbers we could add on top of that or it's relatively marginal or vis-à-vis the labor cost?

Well, marketing, we've basically given a very simple hypothesis to the team, we've reduced by 90% of the expenses. Because we consider that at the moment, it's useless to be on TV. So basically, the only activity in market is digital because people are at home, on Internet, and that's where we can have some visibility. But in our industry, when you spend some marketing activities for a call for action very -- on the very short term. So we've nearly suspended everything, minus 20% is a big difference compared to the normal rhythm.

Can you translate that in million euros to get an idea on a monthly basis?

Well, I don't think any carmaker is giving the amount of sales and marketing that we spend normally. So I don't want to give this number because it's...

Before you said it for the labor cost, but just to get an idea about the operating leverage on this volume decline.

Sorry, can you repeat your question a bit louder, please?

Is it -- is it -- sorry, is it significant, when I put on perspective with your labor costs you just mentioned above? Just to get an idea on the operating leverage on this volume decline, just to help me out.

Well, marketing expenses in car companies are significant numbers. So -- of course, it's much lesser than wages, but there are significant numbers, but I don't want to give detail on marketing expenses of the group.

Okay. Last question, when you mentioned net cash position, if I do my arithmetic correctly, which I'm not totally sure, that the net cash position of the Auto division has declined by EUR 2 billion in the first quarter. Is it a good number?

Well, I've given to you is the total liquidity of the group. And in fact, with the new syndicated credit line of EUR 3 billion on the auto plus EUR 800 million was new club deal, we are basically back where we were. We are basically back at the end of March, where we were at the end of last year.

Yes. Things are a little bit better.

A little bit better. Yes, you're right.

Okay. Does that include any -- the impact of factoring which we want to go back to the question of José earlier today -- earlier this morning. The factoring of receivable, has it significantly been reduced at the end of first quarter or not meaningful?

No, it has not changed significantly. Our policy is always to factor a significant part of our receivables. And it has not been reduced significantly at the end of the quarter.

Okay. Last question, when you have your revenue valuation, there's an Other line plus 3.5%. Can you -- is it something significant behind that number? It's roughly EUR 500 million.

Difficult for me to hear you. Can you repeat the last question a little bit louder?

Yes, I'm sorry. When I see the work down of your revenues, there sales to partner volume and so on. And there's a line Others, which is plus 3.5%. Is there something significant behind that?

Well, it's the mix of buyback sales that has been significantly reduced compared to last year, and this is due to the fact that short-term rental companies do not want cars. So that's purely linked to this effect.

The next question comes from the line of George Galliers from Goldman Sachs.

The first question I just wanted to confirm is just with respect to the total liquidity and the EUR 19.4 billion, just to be 100% clear, is that comparable to the liquidity results for manufacturing and sales companies of EUR 23.4 billion at year-end? Or is that comparable to the EUR 19.2 billion (sic) [ 19.4 billion ]?

Yes. The EUR 19.4 billion is comparable to EUR 23.495 billion, if my memory is correct. Also, I'd like to say the number. And I repeat the EUR 19.4 billion are before taking into account the EUR 3 billion new facility on auto and EUR 800 million on Faurecia. This took place in the very first days of April.

And so just to be clear, the EUR 4 billion delta, is there any -- is that a good proxy for the free cash flow during the quarter or are the financing considerations that have led to that move?

Well, we had 2 big phenomenons in March. We have lost payable because basically, we stopped production half March -- at mid-March. And the second thing is that you got compared to end of December. In terms of inventories, you always have more inventories of new vehicles at the end of March than at the end of December. This is a classical thing, and that's what you can see, if you look at the numbers of the inventories of new vehicles in our full year publication and the Q1, but it's the same phenomenon at the -- as all the last years.

No. Understood. And then 2 questions, if I may, just on getting started again. The first one is from a production perspective. You mentioned that you've already had discussions with unions on prerequisites. How much visibility do you have on whether your supply base has also had that discussions and are also ready to go? And do you think that this will be a bumpy restart given the challenges across Europe? And then secondly, from a consumer perspective, would PSA support or favor some sort of government support for the industry? And with that in mind, would you support a postponement of the 2020 CO2 targets? Would you support scrappage programs? Can you give any idea of where PSA's preference would fit?

Well, on the supply chain, I think it would be very arrogant to say that we've got full visibility on the full supply chain. And if everybody has made an agreement, then is able to restart production properly. If you take -- the problem with this industry, it's not new, is if you've got 1 part missing, you've got an issue. So you can normally check correctly with your Tier 1 suppliers what's happening. After that, when you're talking about the Tier 2, Tier 3 suppliers, it becomes more difficult. So by experience, I would say that we are preparing for things to be not that easy. But on the other hand, I would say we've been managing these kind of things for decades. I mean crisis of -- in the auto industry are something so regular that we've learned with our supply chain leaders to manage that. So -- and the fact is, well, generally speaking, we found solutions. So my answer is, it will be difficult. But as always, it's difficult in that field. In terms -- as to your second question about the government support. Well, on CO2, you've heard that I have said that we have done a very good Q1. We've been compliant each month. We would have been compliant even in a case where we would have a much lower diesel share. So we don't feel in a situation that is complex on CO2. We consider that our situation in CO2 is a competitive advantage. So -- and we think that on the long run, the European Commission will continue to put a lot of pressure on CO2 because that's what the people voted for. So we are preparing the company to more stringent regulations in the years to come, and that's the way we think about it. On the scrappage program, so I think that, well, we are looking at what the governments are working on. What is, I think, the most important in the short term, before talking about the scrappage programs or other things, is to have the dealers open because the need for mobility -- individual mobility is something that people want. And especially at the moment, they don't feel so good to go to public transportation. So I think this is the first priority to be able to restart the dealers and to have the sales activity restarted before talking about anything about government support. And if they decide of other measures, we will, of course, make the most of it.

And can I just squeeze in one final one. Obviously, you have taken -- made use of short time working directive, deferral of social charges and some tax relief. Can you just confirm that you haven't taken any government support that would prevent you from paying a dividend?

Well, what we've not done is we've not taken any loan guaranteed by any state, which is free about that. And as to the dividend, because maybe your question go to that, I guess, you've seen the statement of the group saying that the decision was postponed as the assembly -- the general assembly of shareholders has been postponed to end of June. So that remains an open question. But our policy globally is to -- that we want the company to be as free as possible of public dependence.

The next question comes from the line of Giulio Pescatore from HSBC.

The first one, I mean, you talked about the success of the new models, the ones you launched last year. And I just want to go back to one comment that Mr. Tavares made in Q1 about the order book being stellar. I just want maybe a comment -- I would like a comment on the status of this order book. And is that going to help you as you assume production and as dealerships open in Q2? Then second one, I apologize for going back to the dealer, and I appreciate that you might not be in a position to comment on the terms of the deal, but can you give us some visibility and clarity about when to expect some news flow on the topic, just on the time line?

So -- okay. So let's start with the second one. I'm not sure I understood fully the first one. On the second one, well, I think as you well understand, the group is, today, fully focused on managing the crisis and managing it from a sanitary point of view and managing it from a financial point of view, and it's really the top priority. And that has been the top priority in the past weeks. The top priority in the coming days and weeks is the restart of the production and to manage correctly the cash flow to avoid generating too many inventories. That's what we've been in force. So I have no -- nothing more to say on that respect. On the -- sorry, on the first question, you were asking me about the order book and the comments on the order book on new models. But what was exactly the question? Sorry, can you repeat it?

Yes. I mean, you talked about having an order book for the key models in Q1. I just want to know what's the status on that. Do you still sit on order books? And is that going to -- do you think that's going to help you gain market share as the market reopens?

Well, at the end of March, if we take it globally, PCD plus OV, our order book is similar to the end of March of last year, despite the fact that we had some cancellations of orders of short-term rental and despite the fact that the second part of March was extremely low, which showed that the dynamic before was extremely high. So -- and it's fair to say that there is a difference between PCD and OV, and in particular, in PCD Peugeot as an order book that has grown extremely fast with the 208 and 2008. On the OV side, there was a decline year-on-year, but -- which is due to the runout of some models at the end of '19. On the Corsa side, the order book is excellent. Well, just to give you some more color. But at the end, the answer is an order book that is, at the end of March, similar to end of March last year having -- which has compensated the second part of March, which was extremely low. So I can say it's a very good level.

Okay. So can I just squeeze in another one. On the dividend, just to understand. So I mean, if you were to pay a dividend, is that conditional to FCA also paying a dividend because the ordinary dividend payment was part of the memorandum of understanding in December. So are you -- is that conditional to both companies paying a dividend?

It's fair to remind that the combination agreement had a plan for an ordinary dividend that would be the same for each company. So any change would have to be agreed between companies because this is what's in the combination agreement.

The next question comes from the line of Charles Coldicott from Redburn.

I've just got two. Firstly, on cost savings, just to come at it from another angle. You've said before that you have a target of reducing your production costs by EUR 700 per vehicle. Is that something that's still achievable this year or is that more sort of volume dependent? And with respect to R&D savings that you mentioned, does that cause any delay to any products or any projects at all? I'd be interested in that. And then my second question is just on the dealers. Are you having to support your dealers at all financially or are you expecting to at any point?

Okay. Thanks for the three questions. On the cost savings, it's fair to say that the EUR 700, as it includes everything, it also includes the volume effect. So it was already a bit tense, as we mentioned at full year '19 results. It was tense, but still possible. And that it depends on the magnitude of the volume effect in 2020 because if it's -- with 25%, to be frank, it will be difficult to remain on track with EUR 700, even if we'll put a lot of pressure on that. But let's see how it -- all these volumes develops because it remains a big question mark. On R&D and CapEx, well, for the moment, what we've done is we've basically decided to go to 90% of people in short work, which, of course, means that projects are on hold. But we have not canceled the programs. And after that, it depends on the duration of the confinements. I don't know if I should say confinements in English. But if it's -- well, of course, 1 month of confinement is 1 month of delay for a project, but we've not canceled any significant program. On the dealer side, the main action that we have taken is to extend what we call the free period for the dealers. You remember that when you invoice a car to the dealer, you invoice basically when the car is out of the factory. And typically, you give them 30 days before they start to pay cars to the Finco. So we extended this period because this is a measure that helps the financing of the dealers. That is not very costly, given the funding by the JV because you remember that in PSA, we've got the funding of the JV that is made by our banking partners either -- Santander and BNP Paribas, which is a very good advantage in this crisis. It's not the auto that is financing the Finco. So we've used this lever, and that's the main action that we've taken for the dealers. For the rest, we consider that dealers are independent entrepreneurs, and they are supposed to find their own solutions too.

The next question comes from the line of Horst Schneider from Bank of America.

Yes. I just have got a few left. Regarding your market guidance, maybe I've missed it, but maybe you can clarify. What is the impact -- what is the volume growth market-wise that you expect now for the second quarter in Europe? And could you also maybe specify what you expect by month? So I guess that April is super negative, and then it gets gradually better. But could you maybe add a few numbers to that view? Then the other question that I had was on the product mix effect. Is it fair to assume that we have got a drop-through to earnings by around 1/3 of the impact? And the last question that I have is regarding cash flow. I know it's nearly impossible for you to make a statement where the cash flow is in H1. But provided and given your statements that you made on trade payables that if the production is up and running again in June, is there a chance that you don't burn cash in H1?

Maybe on the third one, to start with. On the working capital, on payables, as we pay basically a bit more than 60 days in average, what is important is the level of production in May and June compared to the level of production of November and December. So it's probable that there is an impact because I doubt that the level of production of May will be comparable to the production of either November or December. So what is difficult to say, as you rightly mentioned, is the magnitude of this effect because I don't think anybody is able to say what will be the level of production in May and June. As to your first question, if we take the minus 25%, it's fair to say that I have given as a guidance for the European market. Well, January and February were down 7%. We are talking about Europe 30 passenger car per plus LCV. March has been down 52%. So April, you could take something like 80%. And if that a recovery like May, minus 50%; June, minus, I don't know, 25%, something like that. That would be a hypothesis that would lead us to minus 25% for the full year. But -- well, once again, it's extremely difficult to say, and things can move quite fast. So that's something that would be consistent with minus 25% globally. And sorry, project mix, your question -- yes, sorry, can you make it again, sorry, I've missed it.

When we look at the revenue impact from product mix and if I want to make then the bridge to the earnings forecast, is it fair to assume that there's 1/3 drop-through to earnings from this revenue effect from product mix?

Well, on the product mix effect, what I had said at the end of the -- of '19 when we presented the full year 2020, is the product mix would remain a significant green bar, but not as high as the previous year. This were with the normal volumes, and I think that's the best indication that I can give. So there is significant green bar, but not as high as last year.

That has not changed despite of the volumes, right?

Yes. Of course, it will change with the volumes in million euros, but it will remain a significant positive in 2020.

The next question comes from the line of Stephen Reitman from Societe Generale.

My question is about your discussion about the breakeven level of the group. And you mentioned that you've got it down to 50%, which is obviously very, very efficient. The comment was made by Michel Favre yesterday on the Faurecia call was how Faurecia had stress tested a 30% -- up to 30% drop in sales, but it hadn't factored in a complete 100% stock occurring as it had happened now. So I'm just wondering how the situation is developing and how that plays to your own stress testing and the fact that you think you can make up in the second half of the year when production will be more normal, a lot of what you lost in the first half in order to get to a positive margin for the full year?

Well, the breakeven point, the 50% that we mentioned last year is on the auto part, if you remember well. But I've not fully understood your question. Can you repeat it, again? Sorry, because the line is not good for me.

I'm sorry. Okay. What I'm saying is that I think you stress tested your businesses. Your breakeven level is on the basis of a 50% decline in the market, but that would be -- the market is down 50% on a running basis for the year as a whole rather than being stopped by 100% and then gradually recovering. So that's what I'm asking is how that [indiscernible] you to this much more severe shock rather than seeing 50% drop over the whole year rather -- it's been absolutely concentrated in the first and, obviously, the second quarters and then hope to recover.

Okay. Understood. Well, when I've done my internal stress test that I was mentioning, it was more than 50%. What I've done is I've taken 3 months in a row with 0 activity, which are in April is not true, even if it's low. And after that, I've got a low recovery to the more than 50%. So it means that it's a very tough scenario because, of course, you've got a very low point in which your payable probably go to 0, which is a big shock. And the good news is, in this stress case, the company is able to resist that. So that was the meaning of our stress test.

So if I'm interpreting this correctly, if the market is down 25% rather than -- and which is obviously your most important market, Europe, rather than down by up to 50%, you should then clearly be in positive territory for your margin?

Yes, correct.

The next and last question comes from the line of Philippe Houchois from Jefferies.

Yes. Last question has been asked already. The two I have left. One is, as you restart production gradually with more distance between workstations, testing workers for health and temperature when they come in, et cetera, what is the loss of productivity on the plant? Is your new capacity on a similar facility, around 80%, 85% is lower than that? If you can just give us a sense of that. And the second question I had is if I look at your cost base in 2019, what you've done so far to reduce costs in different ways, labor, et cetera. Is it fair to assume that excluding any unwinding of working capital is have to do your cash cost per month right now is between EUR 1 billion and EUR 1.2 billion?

Excluding working capital, the amount is much lower, and it's a 3-digit number. As to your first question, Philippe, the loss of -- well, I don't know if the loss of -- if your question alludes to the ability to answer the demand, it's not what worries me because I doubt personally that the demand will be so high in the coming months because the economic crisis will impact people. Well, of course, there was a question previously about some possible measures by governments, so let's see what happens. So your comment is right. I mean, it's -- of course, the measures will not help to go full speed in plants. But on the short term, I think what is logical is to have a decrease in total inventories. So the level of production compared to the level of sales should be lower, which should not be a huge issue in the coming weeks and months. And after that, let's see how this virus situation develops. Because if afterwards we have a solution on the virus, probably we can go back to normal productivity. So I don't see that as a big roadblock in the current situation. Is it clear enough as an answer?

Yes. Thank you. It's great.

This concludes today's Q&A session. So I'll hand back over to Philippe de Rovira for any concluding remarks.

Well, no, thanks to all of you for your attentions. I will -- for your attention and for your questions. I will not repeat the priorities of the group. That's what I've mentioned in my conclusion after my initial speech. So thanks to all of you and all the best, take care with the virus. Thanks. Goodbye.

Thank you for joining today's call. You may now disconnect your handsets.