While Renault manoeuvres its way into a leading role in a globe-straddling alliance with General Motors, its French rival PSA Peugeot Citroen is setting about a very different strategy to achieve global growth, writes Mark Bursa.
Chairman Jean-Martin Folz – a man rated by many analysts as highly as his Renault opposite number Carlos Ghosn – has maintained that big global alliances are not the way forward for PSA. A strategy of individual alliances with other automakers has been pursued, with considerable success.
But even so, PSA has been finding the going tough in the past couple of years. Rising materials costs have wiped out many of the efficiency savings the group has made. PSA has had to bite the bullet and close its inefficient Ryton plant in the UK, while at the same time adding capacity in Slovakia and the Czech Republic.
Therein lies a tale. PSA is targeting an increase in volumes outside Europe to grow at a rate of about 10% per annum. And outside Western Europe is where Folz is concentrating the group’s efforts. In Western Europe, PSA is losing ground – in a market that expanded by 1.5% in the first half of 2006, PSA’s share fell 2.2% to 1.265m units, giving it a market share of 14% compared with 14.5% in the first half of 2005.
Currently PSA is nowhere near the 10% non-European growth target. But sales are doing better than in Europe – in the first half of 2006, 529,000 cars were sold outside Europe, an increase of 3.8% over first-half 2005. Non-European sales now account for a healthy 30% of group sales, and are performing very strongly in some of the Emerging Market hotspots that are key to PSA’s strategy.
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By GlobalDataMercosur area sales were up 31% to 80,000 units, and the group topped 100,000 units in South America in the period. In central and eastern Europe, group sales rose 14% to 112,000 units. And in China sales rose 38% to 100,200 units, in line with a full-year target of 200,000 vehicles sold – though behind the overall China market rise of 47.1%.
PSA has been relatively low-key in China, though its joint venture with Dongfeng Motor, DPCA, has been in place for more than a decade and has expanded its model range to encompass Peugeot models from late 2004, and a new China-specific sedan version of the C4, the C-Triomphe, has just been launched. Nine new models are scheduled between now and 2009.
More significantly, PSA has announced an expansion of the JV, adding a new plant alongside the existing one in Wuhan, Hubei province, which will add a further 150,000 units of annual production capacity. Construction will start before the end of the year, and the plant is scheduled to begin production in 2009.
Along with current moves to double capacity of the existing plant to 300,000 units by 2008, the new plant would give PSA 450,000 units of capacity – more than double the expected 2006 sales total and more than three times 2005’s total volume of 140,000 cars. So PSA is managing its growth sensibly in China, though it has ambitious targets – sales should hit 260,000 in 2007and 300,000 units by 2008, PSA’s China president Yves Boutin recently said.
“The problem for us is not marketing our products, but to have more capacity,” Boutin said. Currently PSA has a China market share of below 5%; expansion of capacity should push this up to around 7%, depending on overall growth rate.
While China has been a success story, PSA has never established much of a presence elsewhere in Asia. Proton built versions of the Citroen AX in the mid-‘90s, but these were sold as the Proton Tiara. More recently Peugeot has assembled cars in Indonesia, but has recently switched this operation to Malaysia’s Naza. But this is a low-key operation, and doesn’t really help PSA’s brand-building – as the cars carry Naza badges.
More significantly, there has again been contact with Proton. While talks are at an early stage, these are ongoing. And while a PSA spokesman said there was “no concrete plan for cooperation with Proton”, the move makes a lot of sense. Proton needs new models; PSA needs a market presence in the ASEAN region. Tellingly, Proton managing director Syed Zainal Abidin Syed Mohd Tahir told a news conference that the PSA talks had reached “quite advanced details”.
And Proton’s main government ally, Mahatir Mohammed, is no longer prime minister. His successor Abdullah Badawi is far less kindly disposed toward Proton, and is believed to favour the fast-rising Naza group as the future of the Malaysian car industry. So Proton may need to pull off a coup in order to reinforce its market leadership in Malaysia.
Proton is talking about alliances and platform-sharing, but it would hardly be a marriage of equals. PSA might be better off establishing a relationship with Proton similar to Malaysian rival Perodua’s arrangement with Daihatsu – where Perodua simply assembles Daihatsu cars and adds its own badges. Volkswagen is also sniffing around Proton – so nothing may come of the talks. But ASEAN remains a front that PSA needs to open up.
Another front is Russia, and PSA is actively looking to build a plant there, confirming that talks with the Russian authorities and potential partners have taken place. PSA sales are growing in Russia, though its share of the market is tiny – just 1.4%. But sales of the Peugeot 307 and Citroen C4 models rose by 84% in the first four months of 2006 in a market that grew by 14%. A low-key CKD operation is the likely first step.
Where else? India may be difficult – Indian buyers may not have forgiven Peugeot’s ill-fated 1990s attempt to set up assembly of the by-then obsolete 309 model in partnership with Indian automaker Premier. The Indian consumers rejected the car, demanding the latest technology – and Peugeot made a swift exit from the market.
But Peugeot made a similar mess of its Chinese operations in Guangzhou at the same time – and has been welcomed back to the market on the back of Citroen’s success with Dongfeng. There’d be nothing to stop Citroen moving into India – indeed, with the Indian market forecast to explode in the next few years, you can bet it’s on Folz’s agenda – if somewhat low down the list.
After all, Folz’s agenda still, apparently, includes a return to the America. He said recently: “The return of PSA to the US market is a very big challenge … but I hope we can take that on in the not too distant future.” A noble ambition, but perhaps one that’s best left till after the growing parts of the world car market have been addressed first.
Mark Bursa