Communication lapses, complex relations have vexed French automaker

WUHAN - Now playing catch up in the world's biggest and fastest-growing vehicle market, French carmaker PSA Peugeot Citroen and Chinese partner Dongfeng Motor Corp last week revealed a plan to aggressively expand production capacity at their joint venture.

The partnership Dongfeng Peugeot Citroen Automobile Co will build a third plant in Wuhan with an annual production capacity of 300,000 cars.

The new factory will hike the venture's production capacity from 450,000 units to 750,000 cars a year over the next five years.

The carmaker plans to introduce 12 new passenger car models under the Peugeot and Citroen badges over the same period.

Dongfeng Peugeot Citroen aims to grab 5 percent of China's passenger vehicle market by 2015, up from 3 percent currently. The venture also expects to have an operating margin of 5 percent during the period.

The plan came 70 days after PSA Peugeot Citroen clinched a deal with another Chinese auto group, Chang'an Motor Corp, to form a partnership to make passenger and commercial vehicles as well as engines.

The joint venture between the French carmaker and Chang'an will have a 200,000-unit plant in southern boomtown Shenzhen expected to become operational in 2012.

According to analysts, the new plan with Dongfeng is apparently a move by PSA Peugeot Citroen to pacify Dongfeng, which was angry at the French carmaker's association with Chang'an.

PSA Peugeot Citroen, along with Volkswagen and General Motors, was one of the earliest foreign carmakers to begin production in China. Citroen formed a joint venture with Dongfeng in 1992.

Yet its sales always lagged far behind Volkswagen and General Motors, as well as a range of later arrivals in China such as Toyota, Honda, Nissan and Hyundai.

Last year, PSA Peugeot Citroen moved only 272,000 cars in China, less than one-fifth of Volkswagen sales in the country.

The French carmaker's troubles in China include its perceived arrogance, inefficient localization and poor branding efforts, analysts said. Its disputes with Dongfeng included disagreements over marketing what new models would be offered.

Industry watchers say PSA Peugeot Citroen will have to listen more to its Chinese partners, especially Dongfeng, and introduce new models for increasingly sophisticated local buyers.

It will also have to balance its relationships with Dongfeng and Chang'an, which are both powerful Chinese motor groups.

Its new program with Dongfeng is mulling an all-new brand without a Citroen or Peugeot badge within the next five years.

The venture also plans to export China-made cars to other markets.

The company plans to launch plug-in hybrid models in the next two to three years and purely electric cars around 2015 in a bid to cut CO2 emissions of its China-made cars by 50 percent in a decade.

China Daily

(China Daily 09/27/2010 page18)