China, Russia, India and even Mexico are on the agenda as PSA strives to reduce its reliance on Western Europe, PSA board director Gilles Michel tells Mark Bursa
Not long ago, PSA Peugeot Citroen was Europe’s most profitable automaker. But since 2001 the going has been tough for the French automaker. The problem is obvious – PSA has lacked global scale, and is heavily dependent on Western Europe, the most closely-fought automotive battleground in the world.
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Now, with new chairman Christian Streiff at the helm, PSA is doing something about it, belatedly making moves into the emerging markets it has neglected, while strengthening its position in those markets where it has a presence. The result should be a major increase in sales outside Europe, giving the business some much-needed balance. Non-European sales should be up by 400,000 units a year by 2010.
One of Streiff’s key appointments was the promotion of Gilles Michel to the PSA board, with responsibility for heading up the Citroen brand. He’s one of the key PSA executives tasked with putting flesh on the bones of Streiff’s plans, known internally as CAP 2010 and Ambition 2015.
The recent start of manufacturing in Turkey, with the PSA-Fiat MiniCargo van series, is the first of several new moves into new emerging markets by the group. In the next few years, expect to see PSA setting up plants in Russia and India, together with more plants in China and even a possible plant in Mexico. Together with recent moves into Central Europe and Latin America, you can see the shape of the PSA group starting to gain some of that much-needed global scale. “Seventy percent of our sales are in Western Europe,” said Michel. “How can we change that? By growing even faster everywhere else.”
China is an obvious area for growth. PSA was a relatively early entrant – its DPCA partnership with Dongfeng has been running since the early 1990s. But recently it has underperformed the rapidly growing market, despite the addition of Peugeot models to the established Citroens on sale for many years. In the first half of 2007, DPCA was ranked only number 10 manufacturer in China – it was even outsold by ChangAn Ford, which entered the market much more recently.
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By GlobalDataPSA plans to put this right with new investment in both models and capacity. “We have very ambitions growth plans in China,” said Michel. “Our production volumes there this year will be about 250,000 cars – but our capacity will be doubled next year, and then we will build another plant so we will rapidly have a production capacity of 600,000 cars. And that will be increased by another 50% two years later. The whole plan has been drawn up – and the product plan that goes with it. We have aggressive ambitions there.”
The model plans are interesting. PSA is certainly not looking to create a Renault Logan style ‘world car’, though he recognises the need to keep costs down. “In China and other emerging markets such as South America we need to have a competitive offering at entry price levels,” he says.
“Our thinking on low-cost cars is that we’re looking at it by market – we believe the answer is very different in different markets. In mature markets we do not think there is a significant demand for a car that is cheap, from the late 1990s. We think there is a demand for lower cost cars – like the C-Cactus concept we showed at Frankfurt. I don’t think we have the answer yet – but I don’t think Logan is the answer,” he said.
In China, the low-cost entry-model role has been performed by the Fukang, a car derived from the early 1990s Citroen ZX. And while it’s an old car, there’s life in the platform yet. “It meets the demand of that part of the Chinese sector,” Michel said, “and we are actively working on producing new products off this low-cost platform. This gives us a very competitive cost basis for the Chinese market.”
The Fukang platform has already spawned the more up-market Elysee – a three-box sedan that looks like the Xsara, the car that replaced the ZX. In reality, there are many similarities between the ZX and Xsara platforms. Also under development is another new low-cost car based on an older platform. This is a new car aimed at South America, and based on the Peugeot 206 platform. The 206 is still a current model in many PSA markets, including China and Brazil, and PSA will continue to develop this platform for emerging markets rather than introduce the more upscale 207, which is seen as a premium European product.
That’s not to say new models won’t be sold in emerging markets. The new C5 will go straight into production in China as well as in France – the first time PSA has launched a state-of-the-art new design simultaneously in Europe and China. Indeed, moving Citroen away from its “budget brand” image is a major element of Michel’s plans.
“Selling on price undermines the credibility of the brand – that needs to be changed and it can be changed.” He points to the launch last year of the C4 Picasso MPV as in indication of Citroen’s new approach. “Our products have been very profoundly changed in past three years, so that allows us to play our hand differently.
“C4 is not underpriced – it has strong resale values and is a very strong seller in fleets, and fleet managers do not operate on emotion. Resale value is directly linked to image of your brand .We’ll do the same with C5 and progressively the situation can strongly changed in terms of image. You are already seeing changes at work.”
While the Chinese passenger car market needs to be serviced with a wide range of vehicles, including the latest European models, the Chinese light commercial vehicle market is very different. “We do not find any of the offers that you find in Western Europe – or even Eastern Europe,” said Michel. “Essentially you have minivans that are a combination of vans and people transporters that can carry people and potatoes or stuff at the same time– Chinese versions of Japanese-style vehicles. They are extremely cheap in terms of content. There is no sense trying to access this market with CVs of the designs we have.”
The solution is a new, second JV in China, with Hafei Motor, a small car and light commercial specialist based in Harbin, north-east China. The deal with PSA would see a jointly-developed small van, drawing on Hafei’s expertise. This would be built at a new factory in the south of the country, a move that would help both Hafei and PSA expand their geographical coverage in China.
Russia is another market where a different approach is needed. Again, while there is a need for low-cost cars, some of the best-performing manufacturers are those specialising in more up-market models. “German brands are selling very well, Toyota doing very well, and Ford doing very well. Half the market is Lada, but the market is changing – in five or six years from now Russia will be a modern market dominated by European and Japanese brands.”
So PSA’s market entry is likely to be aimed into the burgeoning mid-size sector. “We are presently selecting the project – selecting production sites, nature of investment and so on. We have not decided whether to go it alone or with a partner – we’re reviewing that as we speak.”
One thing that’s for certain is the fact that the plant will make both Peugeot and Citroen models from day one. “We will put into place capacity for both Peugeot and Citroen by the start of the next decade. We believe it is a strength of the group to have two brands that are addressing the market with their own personalities and product offering, together with cost synergies in manufacturing and engineering, and separate distribution networks.” PSA’s target is 100,000 vehicle sales in Russia by 2010, rising to 300,000 units when the plant is at full production. PSA’s nine-month sales were up 31.9% year-on-year at 28,000 units.
Beyond the Russian plant, India and Mexico are on the agenda. “We have indicated that we are going to explore India and Mexico, although we have no firm plans at this point,” said Michel. PSA will be hoping Indian consumers have forgotten the disastrous attempt to build the outdated Peugeot 309 design in India in the early 1990s.
India will cover Southeast Asia for the group – discussions to acquire a stake in Malaysia’s struggling automaker Proton have been dropped. “We explored it but we have concluded that it was not making sound economic sense. We have some small CKD in Malaysia making Peugeots with Naza, but I don’t see Malaysia as having major potential for growth,” said Michel.
“In Asia you have two huge markets – China and India – this is where the action is. Malaysia is smaller, and fairly protectionist, so it is not logical for us to set up manufacturing. And we do not have the resources to go all over the world – we are not Toyota – so we have to select in terms of priority and the best fit for our company and our models. Southeast Asia already has car manufacturers, and the markets are not growing very fast, so that does not make the case attractive for a newcomer.”
Mark ‘Coolbear’ Bursa
