India is still a million dollar question for Peugeot

There was no direct reference to India but Carlos Tavares broadly hinted that it was on his company’s radar.

The new Chairman of PSA Peugeot Citroen made a detailed presentation, ‘Back in the Race’, in Paris on Monday detailing the road ahead. These included reducing the number of models from 45 to 26 by 2022 as well as slashing working capital by €1 billion in a couple of years.

Yet, from an India perspective, what was especially interesting was Tavares’ intent to create a new geographical structure with six regions “to grasp growth opportunities”. These include China and ASEAN, Europe, Asia-Pacific, Latin America, Africa and the Middle-East.

As Tavares indicated, there will be an increased focus on growth markets where regional leaders will be empowered and made accountable for growth and profits. Brand CEOs, likewise, will need to pay greater attention to global profit and pricing power. Going forward, the business model will see more global corporate functions supporting regional development.

The key growth driver for this plan will be China’s Dongfeng Motor which recently picked up 14 per cent in PSA in a bailout exercise where the French government has also ended up becoming a shareholder. Dongfeng will now be a critical ally to PSA’s strategy in the ASEAN region which will typically include Indonesia, Taiwan, Malaysia, Thailand and the Philippines, the new growth engines in this part of the world.

It now remains to be seen if the PSA-Dongfeng alliance will follow a similar model for Asia-Pacific where India (and Australia) is the key nerve centre. It seems inconceivable for any automaker not to be present in a country which is tipped to produce six million vehicles by 2018. Yet, in the case of PSA, India has always been a jinxed destination even though it was among the earlier entrants way back in the early 1990s.

Tavares will, doubtless, be keen to bury legacy-related issues and move on with the job of carving out a global roadmap for PSA. The biggest market will, of course, be China which is already clocking big numbers for the company. The partnership with Dongfeng will only widen the horizon in terms of including ASEAN and Asia-Pacific in the course of this decade.

A veteran of Renault and Nissan, Tavares is no stranger to India. He is also perceived as a no-nonsense professional and will not contemplate making fresh investments if returns are slow in coming. After all, it is no secret that India is a fiercely competitive market where small cars account for a lion’s share of sales. If PSA-Dongfeng has to click here, it means a lot of hard work in product planning even though the market will gradually move to larger cars in the coming years.

A late entry would also mean starting all over again in terms of setting up a new facility, product development, localisation and creating a retail network. Unless India doubles up as an export base for markets like Africa, PSA will find it very difficult to ramp up volumes and keep costs in check.

Ever since it called it quits here in end-1997, the French automaker has considered an India comeback on more than one occasion. The first was over a decade ago when it explored a partnership with Tata Motors to produce the 307. More recently, it had earmarked fresh investments for a new plant in Gujarat till the European crisis derailed all plans. As things got progressively worse, it required a lifeline from Dongfeng to get PSA back on track. For the moment, it will focus on building business in China while consolidating operations in Latin America and Russia. The next big step will come with ASEAN and Asia-Pacific though the key issue is timing. It is finally up to Tavares to take the call on India with (or without) Dongfeng.

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