Just a few years ago PSA Peugeot-Citroën was being tipped to lose its independence as part of the automotive industry’s consolidation wave. But its strategy to maintain independence has been successful. The company is even adding capacity in Europe with a new plant in Slovakia, in addition to its Czech joint venture with Toyota. Recently, PSA has also said that it hopes to generate big savings from its industrial strategy. PSA chairman Jean-Martin Folz spoke to Chris Wright about the company’s industrial strategy.

PSA Peugeot Citroen’s platform strategy and manufacturing efficiency improvement programmes are expected to generate more than Euro 1 billion a year in savings by 2006.

Outlining the company’s industrial strategy in Paris, ahead of February’s financial results, PSA chairman Jean-Martin Folz said that the recently announced new plant at Trnava, Slovakia, will allow the group to reach its target of producing four million vehicles a year in the same timescale.

“Existing production capacity is saturated, particularly in Europe,” said Folz. He added that the group would now look to see how it could squeeze more from its other plants around the world. There is some capacity spare in South America and China. The Porto Real plant in Brazil has a capacity of 100,000 vehicles but produced just 48,000 last year. At Buenos Aires just 17,800 cars were built at the factory capable of producing 140,000 vehicles a year while in Wuhan, China, PSA built 84,400 vehicles, well short of the plant’s limit of 150,000.

Folz expects China to use all the Wuhan capacity before very long.

“The South American markets are a lot more volatile. Argentina was a 400,000 plus vehicle a year market but has dropped to just 80,000 last year. I see this plant becoming more of an export base for vehicles for the rest of South America.

“In Brazil it is different. There has been a slowdown but the dynamics of the market are not the same as Argentina. Brazil is still a 1.3 million market and it is the newer entrants to this market, of which PSA is one, which are making gains.”

Additional capacity will be available in 2005 when PSA’s joint venture plant with Toyota opens. The plant will make 200,000 small cars for the Peugeot and Citroen brands with another 100,000 for Toyota. Trnava, where production is scheduled to start in 2006, will have a capacity of 300,000 units per annum.

Ryton uncertainty
Ironically, one current plant which is meeting all its utilisation objectives does face some uncertainty over its long-term future. The 206 plant at Ryton in the UK is operating at 140 percent of its capacity following the introduction of four shifts there late last year.

But Folz said threatened strike action at the plant and Britain’s refusal to join the Euro made it “difficult to plan for the future”.

Workers at Ryton are voting on strike action Friday (January 31) after unions rejected a 7.3% wage offer over two years. Folz said, ” We have made the best offer in the British car industry and now it is up to the employees to decide.”

PSA has also been unsuccessful in getting UK Government grants for developing the ageing Ryton site which is land locked by housing estates.

“The medium term future of Ryton is assured,” said Folz. It currently builds the highly successful Peugeot 206 but when the time comes to replace this model the future is not so certain.

Folz added: “Currency fluctuations caused by Britain’s non-participation in the Euro make it very difficult to make long-term decisions. We would prefer it if Britain joined the Euro.”

‘Three drivers’ to making plants more efficient
PSA has 14 assembly plants and total 2002 output was 3,262,000 vehicles, an average of 14,000 cars a day. In addition, it operates two engine plants at Tremery and Douvrin – it also assembles engines in Brazil and China – two transmission plants, Caen and Mulhouse, plus one in China, and two chassis plants also at Caen and Mulhouse. Average 2002 output was 15,000 sub-assemblies a day of each.

Folz said: “All of the group’s European plants are operating totally or partially in three or four shifts but there are three drivers to make the production base more efficient – deployment of our platform strategy, the implementation of our manufacturing efficiency improvement plan and improving assemblability and working conditions.”

Platform policy inspired by Volkswagen, ‘but execution is different’
Platforms for the group’s cars are designed for both Peugeot and Citroen marques while it has two joint platforms with Fiat for MPVs and utility vehicles, plus the new small car platform being developed with Toyota.

Folz said that while the platform policy was inspired by the Volkswagen Group, he believed PSA’s execution of the strategy was very different. “We are not interested in putting different badges on the bodywork,” he added. “Citroen and Peugeot vehicles look very different.”

Platform production has also been assigned geographically. Platform 1 (C3, Saxo, 206 and 106) is at Aulnay and Poissy in the Paris area, Ryton in the UK, Madrid in Spain, Porto Real in Brazil and Trnava in Slovakia.

Platform 2 (307, 406, Xsara) is at Mulhouse and Sochaux in Eastern France, Vigo in Spain, Buenos Aires in Argentina and Wuhan, China.

Platform 3 (607, C5) is at Rennes in Western France.

Folz said: “Deployment of the platform strategy and the resulting standardisation of shared parts underpins a more rational manufacturing organisation which is having an impact on procurement, the supply chain, maintenance and production allocation by line.

“After full implementation of the platform strategy in 2006, with the final phase out of the old platforms and the production of a single platform per site, PSA will leverage the full benefit in terms of lower costs and shorter cycle times.”

Currently the only plant producing a single platform is Ryton.

Jean-Martin Folz

PSA’s factory upgrade plan
PSA, said Folz, had also embarked on a factory upgrade plan to help improve production processes. This includes a 10-year Euro60 million a year replacement of stamping lines, Euro160 million to upgrade body-in-white facilities, and a 10-year renovation programme at paint shops – Sochaux and Rennes have already been completed. Total investment volume is Euro1 billion a year.

Folz said there was still some work to do on PSA’s Convergence Plan designed to bring together and standardise work practices at the Group’s plants.

“There is a historical reason for the variety of plant practices, since the Peugeot and Citroen assembly plants were not combined until 1998. This means there is significant room for improvement.”

Efficiency, he said, may differ from one plant to another, with logistics costs twice as high and quality control twice as poor. “Alignment with internal and external best practices should drive significant improvement. This is a major focus of the Group’s production base improvement strategy.”

The showcase for PSA’s new production techniques will be the new plant in Slovakia.

Jean-Martin Folz biography

Jean-Martin Folz was born on 11 January 1947 in Strasbourg.

After completing his studies at the Ecole Polytechnique and the Ecole des Mines, he spent one year in Tokyo at the Maison Franco-Japonaise.

In 1972, he began his professional career in a local office of the French Ministry of Industry. Between 1975 and 1978, he belonged to various ministerials staffs, and then was appointed Chief of Staff to the Secrétaire d’Etat à l’Industrie.

In 1978, He joined the Rhône-Poulenc group first as Plant Manager of the Saint-Fons unit. He later was appointed Deputy General Manager of the Rhône-Poulenc Specialty Chemicals Division.

Between 1984 and 1987 he was President of Jeumont-Schneider, a subsidiary of the Schneider group. He was appointed CEO of Péchiney in July 1987 and President of Carbone Lorraine.

In 1991 Mr Folz was appointed CEO of Eridania Béghin-Say.

He joined the PSA Peugeot Citroën group in July 1995 and was appointed Director of the Automotive Division in April 1996. He was appointed Chairman of the Managing Board of the PSA Peugeot Citroën group as of 1 October 1997.  On that same date he also was appointed Chairman of Automobiles Peugeot, Automobiles Citroën and Banque PSA Finance.