The Peugeot comeback that never was

It is finally official. PSA Peugeot Citroen has made it known that it will not go ahead with its Rs 4,000-crore Gujarat project and will, instead, look at opportunities in India with its new global ally, General Motors.

Even a die-hard PSA supporter is unlikely to buy this story. GM is just about readying its new India story with China's SAIC Motor Corp.

It will be a good three years before the big numbers start coming in. GM has also indicated that it will focus on Asia, especially China, through this decade. Whether a PSA will fit into this plan remains the million-dollar question.

And even assuming that the French automaker's cars are produced in GM plants here, how will it possibly be of any help in terms of market share or brand recall? Clearly, PSA is not quite ready with an India script and would much rather focus on China, Brazil and Russia as part of its strategy to grow business beyond Europe.

Time will tell if the company goofed up by ignoring India, which is tipped to be the world's third largest automobile market by 2020.

At this stage, PSA is really in no position to commit large investments, given that it had a difficult 2011 which prompted it to team up with GM and rewrite a revival plan for Europe. To think that this can extend to India may be stretching things a bit too far, at least for now.

PSA was, of course, among the earliest entrants here in the early 1990s along with Daewoo. Both shut shop eventually, although for entirely different reasons.

Daewoo could not do much to salvage its India operations just when it had a product like the Matiz to take the story forward. Its parent company in Korea went bust and GM eventually bought out the business.

PSA's heady phase

In the case of PSA, it went through a rocky period which saw a lockout of its Kalyan plant near Mumbai and losses kept piling up by the hour. Things got progressively worse when relations with its Indian partner deteriorated and legal intervention became inevitable.

It was only after this tumultuous period that an energised PSA was ready to start its second innings in India on a cleaner slate. Its employees had stood by the company right through these difficult times and were finally beginning to see some light at the end of the tunnel.

There were new products in the pipeline and, most importantly, the TUD5 diesel engine was the best bet for a market inclined towards this fuel.

As a journalist covering this story through the late-1990s, I must admit it was quite a heady phase with every passing day throwing up a new surprise.

However, nothing prepared me for the announcement in November 1997 of PSA calling it a day in India. This was just when the company was turning the corner and had the early mover advantage in a potential market.

Remember, there were only a handful of brands then like Ford and GM compared to the overcrowded terrain today.

The senior management team in India was completely devastated hearing the news of PSA's exit. Some had worked around the clock over the last two years to ensure that operations continued in the Kalyan plant even while things were on the boil.

“Why are they calling it quits now? And what happens to all of us who have families to support?” were the general reactions to this quixotic move.

Bankers, dealers, ancillary suppliers and customers were as outraged because PSA's abrupt decision had left them high and dry.

During these trying times, the 1,500-plus workforce still refused to accept that all was lost and tried to keep operations going at the facility. Eventually, though, they had to cope with the harsh reality of joblessness and looking for alternatives elsewhere.

Losing goodwill

And why did PSA opt for this illogical option? People familiar with the goings-on in Paris told me that the top management had lost all faith in India and were convinced that staying on would be catastrophic.

The fact that this would hurt a whole lot of business associates was clearly not as important and it was hardly surprising, therefore, that PSA lost a lot of goodwill in the process.

In all fairness, the mood was a lot more buoyant this time around though this still did not convince former employees associated with the earlier fiasco.

However, when the Gujarat deal was sealed and the investments made known, even they grudgingly admitted that the French automaker meant business.

Pity that there had to be an encore of 1997 and it may be just impossible for PSA to contemplate an India entry in the near future.

For a company that is keen on growing its business beyond Europe this decade, this could end up being a costly mistake.

It has targeted 50 per cent of numbers coming in from other parts of the world over the next three years, going up to over 65 per cent by 2020. China will be the pivot of this growth plan where PSA has two joint ventures in place.

The 170,000 cars planned for India by 2015 (and going up to even three times as much by 2020) will now have to be readjusted in other geographies like Russia and Brazil.

Of course, the unexpected may still happen where GM and PSA could end up producing cars here but this will take at least five years longer.

The top priority for GM is obviously the SAIC alliance which has been its lifeline during the 2008 crisis and has also helped it take the top slot in the Chinese car market.

For SAIC, India is critical as the first part of a global story which could include Malaysia, Thailand, Indonesia and the Philippines in the near future. GM will be part of this plan and to expect PSA to script its own India story in this space may just be wishful thinking.

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