Peugeot needs right ally in India

You cannot help but feel sorry for PSA Peugeot Citroen whose India plans seem constantly jinxed. It shut shop here nearly 15 years ago in controversial circumstances and, in the process, incurred the wrath of its financiers, dealers, suppliers and customers. Some years later, it contemplated a re-entry with Tata Motors but the project was shelved.

There was complete silence thereafter during which time every top global carmaker had set up operations in India. PSA was the notable exception and its global ambitions, beyond Europe, seemed confined to Latin America, China and Russia.

News kept doing the rounds, though, of the company's teams visiting India from time to time to check out its potential. Finally, some months ago, PSA announced its Rs 4,000-crore project outlay in Sanand, Gujarat, which first hit the headlines with the Tata Nano.

The French automaker also had a stall at the recent Delhi Auto Expo to convey its India intent and just when it seemed that things were finally on track, came the news that all was actually not well.

The change in thinking was attributed to the ongoing crisis in Europe which had, apparently, prompted PSA to reconsider its project here. The company was quick to clarify that it was only working out a revised time schedule which, in effect, could mean that the target of 1.7 lakh cars by 2015 could now take longer.

Partner factor

There is no question of PSA changing its India plans, considering that it is looking at two-thirds of its business coming in from geographies beyond Europe by 2020. The carmaker has realised for sometime now that it would be suicidal banking on Europe and has, since, identified China as its key growth driver along with Brazil and Russia.

India is the recent addition to this global vision and will begin contributing the big numbers beyond 2015 when PSA gets cracking on its global compact car.

However, there are bigger challenges to reckon with and one of these relates to the need for a partner to take the growth story forward.

It is no secret that Italian automaker Fiat is keen on roping in an ally to wrap up a formidable three-way alliance, which includes Chrysler. PSA's name has been doing the rounds as a potential suitor for many weeks now and though both companies have denied any such move, observers believe it makes a lot of sense from the viewpoint of survival in the long term.

Unlike Fiat, which has achieved a sense of stability for barely four years thanks to its CEO, Mr Sergio Marchionne, PSA has hardly faced any hiccups.

Yet, there is no telling what the future has in store, especially when other big names are coming together, right from Renault-Nissan and Daimler, to General Motors and China's SAIC Motor Corp.

There are also cultural issues to reckon with in a PSA-Fiat alliance. And who knows this better than Suzuki which is now itching to get out of its marriage to Volkswagen, or Daimler which struggled to keep things going with Chrysler?

There is also a school of thought that believes PSA should strengthen its bonding with Mitsubishi while Fiat should think of Suzuki as an ally for the future. “When all the action is happening in Asia, why should two European companies come together?” experts argue.

Back in 1997

Funnily enough, way back in 1997 when PSA (under the Peugeot banner) was trying to put its India house back in order, it had actually reached out to Fiat for a possible alliance.

A team from Paris had flown out to Turin and made an offer to share capacities at the existing Peugeot plant near Mumbai. The model discussed then was to let Fiat use two-thirds of the facility to make its range of cars while the French automaker would take up the balance one-third.

The PSA rationale was that the Indian automobile market was still in its early growth phases and it, therefore, made more sense to share capacities. Fiat, which had already identified land near Pune, refused the offer as it had already worked out an India strategy. Well, it did not take too long for PSA to call it a day in a move that sent shock waves across industry circles.

Fiat, likewise, had to rework its plans and dropped its Pune facility in the process. It did not achieve much in the revised Mumbai location and eventually joined hands with Tata Motors to start a new chapter in the same spot where it had first planned to kick off operations.

Today, Fiat is relatively better off than what it was some years ago but the best is yet to come. The Tata alliance clearly failed to yield any results on the retail front and the Italian automaker has since decided to branch off on its own.

PSA, in its turn, has still not opened its India innings but has been forced to go slow, thanks to the crisis in Europe. Further, it would be quite right in staggering investments (on the lines of what French counterpart, Renault did in India following the 2008 Lehman crisis) and giving top priority to its booming China business.

Fiat or Mitsubishi

So, does PSA need a strong global partner to ensure that its India strategy, again under the Peugeot brand, is in place? It has the option of choosing either Fiat or Mitsubishi to make this a reality.

The latter could actually work out better considering that the two were in talks for a crossholding deal not so long ago. Reports also began doing the rounds of PSA and Mitsubishi planning a global small car where India would be a strategic hub. It is not as if the French carmaker cannot do all this on its own; it is just that an ally would go a long way in keeping the overall cost structure in place especially during these troubled times.

Interestingly, during its forgettable first outing in India, PSA had also explored the possibility of teaming up with Renault when the Fiat offer had been turned down. The latter, apparently, was not too enthusiastic because the market did not look too promising.

Renault's earlier car clinics with Mahindra & Mahindra to bring the R-17 and 19 were not entirely encouraging either. Eventually, PSA's top brass in Paris decided enough was enough and brought down the shutters on its India operations.

It was possibly the biggest error of judgment because had the French company hung in there, it would have comfortably built up its market share over the years. After all, it was among the earliest entrants to India along with Daewoo, which also wound up its operations when the Korean parent went bankrupt.

PSA is still confident that it can reposition its Peugeot brand strongly in a younger, different India, despite losing an earlier opportunity. It will now boil down to choosing an appropriate partner.

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