PSA Peugeot Citroen has not had it all its own way in China despite being an early player. Two years ago it was facing a Volkswagen-type calamity (the German company watched a passenger car market-share shrivel from almost half the market to 20% in three years) where the market share it had was in a state of collapse.

Fortunately, the actions that were taken then have been enough to reverse the decline, and the ambitious plans for the future – including today’s announcement of a decision to build a new assembly plant, look as if they will be enough to keep pace with a vehicle market once more growing at 40% per annum.

The corporate structure of the car assembly business makes business planning very hard. Chinese law prohibits any foreign company from owning more than 50% of any enterprise. Most of the Western investors in the huge market are desperate for the 50:50 rule to break down – not necessarily in frustration at the slow decision-making in China but because 50:50s rarely work well anywhere.

Citroen started production of the Fukang – a ZX derivative in both hatch and notchback forms – in 1992 in Wuhan in Hubei province 400 miles inland of Shanghai. The car became a staple of the entry-level market. Although still being made, its sale price has almost halved in the last five years as cheap domestic product appeared on the market.

Citroen’s first reinforcement was the Xsara Picasso whose one-box made little impact in a country still-wedded to sedans. New buyers – and 68% of buyers are still first-timers – want mass for their cash and are well-informed on the growing quality of modern cars.

In 2004, when the phenomenal growth in the market fell for the first time with China imposing credit control to cool the overheating, Citroen sales fell by a quarter  – despite the 2002 addition of the Elysee – and the French were saved by the mid-year introduction of the first Peugeot, the modern 307 sedan. By the end of 2005 though, the joint venture company Dongfeng Peugeot Citroen Automobiles (DPCA) had lost €91 million. The indications are that it will break back to profit this year.

Today there are five models at Wuhan – the Peugeot 206 arrived in January – rolling down the assembly lines with the young workforce trained to assemble any of the five in random order. This month they will be confronted also by the all-new C-Triomphe and in the autumn another new car, believed to be the C3. The search for a new factory site will have to be quick. Seven models in the Wuhan plant is asking a lot. If they all sell to plan, production will double and exceed the 300,000 capacity within two years.

C-Triomphe is a C4 with a boot – a car which embraces two of the curiosities of the booming Chinese market. Firstly the C4 name had to be dumped because 4 is an unlucky number in China and sounds very like the word for death.

Secondly, the Chinese must have that boot – not because they carry anything in it but because the car looks so much bigger. Citroen did much of the redesign and styling for the surprisingly-attractive C-Triomphe in China with its own staff of 650 engineers. Today, there is banner advertising across three lanes of motorway in major cities for the fresh face of the C-Triomphe.

Before long there will be ads for the imported C6 which will drag the brand’s image up into the value end of the large-luxury market – an ideal proposition for the Chinese.  By a happy accident, 6 is China’s lucky number and motorists are desperate for a 6 on the registration plate.

Also announced today was the formation of an import company, Peugeot Citroen China Automotive Trade Company, which is to bring in the C5, C6 and Peugeot 407. Rather pointedly, the import business does not involve Dongfeng despite the rule on foreign makers needing local partners. The one marked exception so far has been Honda which has skirted the rules by promising that the 30,000 Honda Jazz cars it builds will all be exported – mostly to Europe.

If and when PSA can go it alone, as it does everywhere else in the world, it now has a hard-won Chinese corporate structure ready and waiting to accommodate the new entity.

Rob Golding

See also:

CHINA: PSA Peugeot Citroën expands in China (03/04/06)