Act global, think local – it’s a good philosophy and PSA’s Christian Streiff seems to be a believer, as he sets ambitious growth targets for Mercosur. Mark Bursa reports
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What’s the best way to judge a manufacturer’s success in an emerging market? Just sit in a rush hour traffic jam and observe the cars going the other way.
In Brazil’s fashionable Rio de Janeiro, both Peugeot and Citroen have a marked and growing presence – hip young Brazilians increasingly favour the Peugeot 206 and Citroen C3 – though still not in the same numbers as the Chevrolets, Volkswagens, Fords and, above all, Fiats that clog the freeways heading for Copacabana beach.
In Argentina, the roots are deeper. Buenos Aires is crawling with ageing Peugeot 504s in varying states of decay, ranging from smartly turned out taxis to decrepit bangers kept on the road by enterprising roadside workshops. Born in the 1960s, the sturdy 504 was built in Argentina from 1980 to 1999, and it has something of a cult following.
And judging by PSA’s market performance, that is spilling over into the newer models the company makes there – especially local market-adapted sedan versions of the Peugeot 307 and Citroen C4. The C4 sedan is called C4 Pallas, and was originally designed for China – it is built at Dongfeng Peugeot Citroen Automobiles (DPCA) in Wuhan.
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By GlobalDataThe car needed some re-engineering to suit Argentine tastes, but is proving to be “well suited to the Mercosur market philosophically and in terms of design,” said PSA president Christian Streiff. “It may be even better suited to Mercosur than to China. It is enjoying success in China but it will achieve REAL success here.”
So PSA is big in Argentina, in third place this year but not far behind VW and Ford. But it’s not quite so big in Brazil – a distant fifth. The Brazilian top three – Fiat, VW and GM – control around three-quarters of the market.
But PSA is getting there. And Streiff is clear about where he wants to be in the region: “We’re not yet in the big four, but we want to be.” PSA’s Mercosur market share this year is around 7.3%, equating to 6.4% in the larger Brazilian market and 15% in Argentina. Streiff wants to see PSA claim 11% of Mercosur sales by 2010, rising to 15% by 2015 – well into “big four” territory. PSA is placed a distant fifth in the Brazilian market.
Streiff wants to achieve this growth without having to build new plants or make major capital investments at its existing plants. In the companion piece to this article [see link at the bottom of the article], the difficulties of adding capacity at both Porto Real in Brazil and Palomar in Argentina are made clear.
However, Streiff is considering another option to serve South America – Mexico. This would also allow PSA to supply North America under the NAFTA rules, though a US market re-entry is seen as a long way in the future, and the vibes from PSA HQ regarding Mexico are not positive – largely because PSA has priority projects in China and India, which are way ahead of any US dalliance in the pecking order
Streiff’s ambitions are in line with his CAP 2010 programme, which has ambitious profitability targets for the group. And getting a better return from emerging markets is a sound way to achieve this. Analysts believe PSA lags behind the likes of Fiat and Volkswagen in terms of profitability from emerging markets operations.
So this means PSA will not chase the lower end of the market. Instead it will focus on premium products – lower-medium sector cars such as the Peugeot 307 and Citroen C4, or the Citroen Xsara Picasso MPV. “Upper segments are moving at a faster pace than the others,” said Streiff. “Oddly, Citroen is perceived as the more up-market brand of the two, a reversal of the two PSA brands’ images in Europe.”
“Brand image in Mercosur is very different to Europe,” he added.
And despite the move up-market, he cautions that PSA needs to cater, for now at least, for the Brazilian “popular” segment too – though at the top end of the segment, with €10,000 cars rather than €7,000 models. “The popular sector will decrease over the long term,” he cautioned.
PSA is growing faster than the market too – sales in the first ten months of 2007 were up 32%, while the overall Mercosur market grew 28%. “We are having to run fast because the market is running fast,” said Vincent Rambaud, PSA’s director of Mercosur operations. Rambaud has been given responsibility for running the region by Streiff, who wants a more local approach to running PSA’s emerging markets operations rather than tightly controlling them from Paris.
To achieve Streiff’s goal of catching Fiat, VW, GM and Ford, PSA is planning to pump around €500m in to its plants in Brazil and Argentina between now and the first half of 2009 – around €150m to upgrade facilities, and €350m on developing 12 new models – or variations on existing PSA models – specifically for Latin America by 2010. “We need to improve our market coverage,” said Rambaud. “In five years time we will have doubled the number of body styles on offer, and we will cover 80% of the market.” Streiff concurs: “The model plan is very rich,” he said.
Rambaud believes Mercosur-specific models have to be “adapted in more than detail”, and as a result, engineers familiar with the needs and tastes of the Mercosur market have been hired to run the local engineering office.
Already a number of specific local variants, in addition to the sedan C4 and 307, have been developed, including a version of the Peugeot 206SW badged Escapade, with add-on plastic wheel arches and a higher suspension, to cope with poor quality Latin American roads. A similar variant of the Citroen C3, the C3 XTR, is also made. Another feature of local models is “tropicalisation” – adapting the cars to cope with more consistently hot climates.
Improving distribution is also part of the plans, with a target to expand the dealer networks for the two brands in Mercosur from 300 at the end of 2006 to 450 by the end of 2010. Around 60-70% of the Brazilian market is accounted for by the two biggest cities – Sao Paulo and Rio de Janeiro.
We’ll not know if Streiff’s strategy has worked for a while yet. But if in 10 years’ time the streets of Buenos Aires and Rio are filled with ageing but loved C4 Pallas and 307 sedan models, we can be sure that he’s cracked it.
Mark Bursa
See also: EMERGING MARKETS ANALYSIS: PSA’s Mercosur plants – a tale of two factories
