The PSA group in China – from defeat to victory

30 March 2018

Plan Push Pass PSA – implement 1 million cars in China and Southeast Asia

Four years ago the future of the French PSA Group in China seemed rosy beautiful. China has become the largest market for the automaker in 2014, when sales reached 734 thousand vehicles for the first time ahead of France. Two joint ventures PSA increased production, and a premium sub-brand DS has just been separated from the Citroen, aiming to attract wealthy Chinese buyers of its French elegance.

DS 5 model 2017

Since then, PSA sales in China fell by almost half – to 387 thousand in 2017, while the Chinese passenger car market grew 25% – to 24,7 million versus 19.7 million in 2014. Chinese Assembly plants PSA are significantly below design capacity. In the leadership of the local branch was replaced several top managers. The range of products was limited due to the lack of crossovers and new cars models and manufactured based on older platforms that are no longer produced in Europe.

"Everything about the disappointing sales of PSA, due to the fact that their products are not too adapted to Chinese customers," said analyst Chang Shu of the consulting company Roland Berger in Shanghai.

CEO Carlos Tavares proposed that the shareholders of the PSA a critical evaluation of the activities of the Corporation during the past year. "Our findings in China do not justify expectations," he said at the annual General meeting of shareholders. "We lost market share, we lost profitability. Our rate of adaptation is insufficient." In turn, Mr. Tavares has promised to strengthen the retail network and PSA to reduce production costs.

Citroen C4 L model 2010

Slow growth
According to analysts, and given the fact that the auto market of China is projected a significant slowdown, as domestic producers and joint ventures with global manufacturers are actively developing, that 2018 is particularly important for PSA. "This is their crucial year," says Namrita Chow, principal analyst at the Chinese consulting firm IHS Markit. "They need to get their SP to earn. Today PSA is in dire need of a decent marketing in China, if it wants to keep its global presence."

So, IHS predicts that the Chinese market of passenger cars (excluding light commercial vehicles) will grow in 2018 by only 0.6% to 24.1 million In the past year, the market grew by 4.1%, but its growth rate slowed significantly in the second half of the year. "All in the automotive industry want to grab a piece of the pie," – said Chou: "Even with growth of only 0.6% still hope to get something".

 

DS 7 Crossback – model 2017

I must say that PSA still took steps last year to slow the decline. Thus, the market was removed, several new models of SUVs and crossovers, and data on their early sales are encouraging. In the framework of the business plan of the company called a Push Pass to 2021 in China in total are launched 20 new models. In addition, looking ahead, the PSA may produce and sell cars of the Opel brand in China, while retaining the brand's presence in his native Germany.

Citroen C5 – model 2010

  In June, PSA and Changan Automobile have agreed on the recapitalization of their joint venture, known as Capsa, which collects models of DS nonsense in the South China city of Shenzhen. In late January, Changan has agreed to invest $418 million to reduce its debt burden to support operations and to Finance the development of electric vehicles and other new models. PSA has taken on a similar commitment. The Corporation is targeting an operating profit of 10% to Capsa, and other major joint venture with Dongfeng Motor. Dongfeng acquired a 14% stake in PSA in 2014, when the French automaker was close to bankruptcy.

Citroen C6 model 2016

 
  Former Executive Vice President Latin America Carlos Gomez was appointed Director of PSA operations in China and Southeast Asia. He started to work since February 1 this year, replacing in this post Denis Martin, who had held this position for 18 months. In turn, Martin was replaced by Gregoire Olivier, who was once even considered as a possible candidate for the presidency, when the PSA was shown in China a brilliant success.

Mr. Shu from Roland Berger met with Gomez and said that the Executive Director of the PSA is well aware of the challenges ahead. "This is not a short-term solution is the assignment for the next two or three years," he said.
  
Focus on SUVs
A Central element of efforts to revive the PSA will be a wave of new products, most of which – SUV, a segment which last year grew 12% in China, as all other types of cars (sedans, minivans, etc.) lost demand. Crossovers Peugeot 5008 and 4008 (sold in Europe as model 3008).

Peugeot 4008 model 2016

These crossovers first came to Chinese buyers last year and then last fall they added Citroen C5 Aircross.

Citroen C5 Aircross model 2017

In 2018 there will be model DS 7 Crossback, Citroen C3 Aircross and the anticipated mid-size sedan, which reportedly will replace the Peugeot 508 and Citroen C5.

 

Citroen C3 Aircross model 2017

Citing the silent period before the release of its financial results for the year 2017, PSA said it would not comment on the release of new products or changes in marketing plans in China.

Citroen C-Elysee – model 2017  

So, in 2017, Citroen has sold almost 23 thousand C5 Aircross crossovers, presenting it in September, and 52 thousand of Peugeot 4008 (came on the market in the fall of 2016), in addition, the automaker has sold 23 thousand Peugeot 5008 crossover, since its debut in may.

Peugeot 5008 model 2017

According to the forecast IHS new models will lead to double-digit sales growth, with total sales of PSA will increase to approximately 500 thousand nevertheless, it is still very far from the objectives of the PSA according to the plan, Push Pass, which is targeting a million sales in 2018 in China and Southeast Asia.

Peugeot 508 model 2010

Peugeot 508 GT Line model 2018

tougher competition
Analysts say that the development of PSA in China remains slow and uneven. In the line of products still present competing older models, including an earlier generation of Peugeot 3008 and several models of Citroen and DS sold only in China.

 

Peugeot 3008 China model 2016

"They have a problem from the point of view of a competent market positioning of products in the model lineup," said John Zeng, General Manager of Shanghai LMC Automotive. "They need a lot of time to deal with it."

Over the last decade, buyers have also become more sophisticated. "When local consumers are looking at models of international brands and thought," Oh, wow, they have everything what is not from our brands," said Chow of IHS. Now he added: "They know very well what is happening in the world of cars, they are surfing the Internet, they read the news. If you want to win the market, you need to have fresh products that are relevant to people now and not give them the expired products."

Baojun 510 – model 2017

A more serious problem for PSA may be increasing competition from Chinese manufacturers. Local manufacturers such as Geely and Trumpchi (GAC) suggest the model with the technical level, not inferior to foreign brands, but at a lower price. As a result, they increased their share by more than two percentage points in 2017, respectively, to 37%. Several joint ventures began to create local brands, including Venucia (Nissan / Dongfeng) and Baojun (GM / SAIC).

Venucia T70 – model 2017

At the same time and leading foreign companies such as Volkswagen Group, Ford Motor and General Motors, committed to growth in profits and sales in China, as markets in the U.S. and Europe begin to stagnate. "You fight tooth and nail against anyone who is in the market," concluded Chou..