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How Peugeot will work on its India comeback

MURALI GOPALAN | Updated on January 20, 2018

Carlos Tavares, Chairman of the Managing Board of French carmaker PSA Peugeot Citroen   -  REUTERS

Hunting for the right ally and building market share is a tall order but PSA has a plan



What if Peugeot had decided to stay on in India and fight it out in this market instead of quitting like it did decades earlier?

After all, it was among the earliest entrants in 1993 and would have had the first mover advantage. Sure, the 309 was not the best of products to kick off its innings but the French carmaker could have learnt a lot along the way. Perhaps, it would have been sitting pretty today after Maruti and Hyundai.

Or perhaps not, sceptics will quite rightly argue. After all, what has General Motors achieved in terms of market share after nearly two decades? For that matter, Fiat is another example of a carmaker that has not done anything extraordinary all these years.

Well, the reality is that Peugeot decided to shut shop instead after barely four years of operating in India. It went through a lot of pain starting with a labour strife at its plant near Mumbai, followed by a cash crisis and then a spat with its partner. Finally, when the worst was over and the company was ready to restart on a fresh note, headquarters in Paris decided enough was enough and down came the shutters.

This was way back in 1997 and a lot has changed since then, both within PSA Peugeot Citroen and across the Indian car landscape. And on Tuesday, Carlos Tavares, Chairman, made known that the company would be setting up shop in India. The only giveaways were a partnership deal that would be in place in the next three years with a product blitzkrieg to follow in end-2021.

Back in the game

From Tavares’ point of view, this is the best time for PSA to stage a comeback. It is in sound financial health now unlike five years ago when its very survival seemed unlikely. This was largely thanks to the wobbly market in Europe which prompted the company to slam the brakes on its India project planned in Gujarat.

The recovery has been painful and yet miraculous considering that not too many people were convinced PSA would actually make it. There were a host of interim solutions like an equity tie-up with GM that did not quite deliver the desired results.

Eventually, it took a Chinese entity and reliable PSA ally, Dongfeng Motor, to act as the knight in shining armour. The French government also did its bit while Tavares spearheaded the recovery process. So, how will PSA work out its business plan for India? It is already familiar with a local partner in the form of Mahindra & Mahindra which took over its beleaguered two-wheeler business recently. But then cars are a different proposition altogether and it remains to be seen how M&M can help out in a large scale operation. Sure, the company has had its JVs with Ford and Renault but how would an alliance with PSA help its cause?

Forging ahead

Tata Motors could then be the next potential ally. The two are no strangers either considering that there was a time they explored the possibility of bringing the 307 to India nearly 15 years ago. Will PSA and Tatas come together again?

The Indian company desperately needs to prop up its car business. It has enough capacity at its Gujarat plant (near the same location where PSA wanted to set up a facility) and may be open to some kind of alliance. Tatas already have a manufacturing JV with Fiat at a facility near Pune and it is not entirely clear if they will go ahead with another partner especially at this point in time.

The other option that may just work is Dongfeng partnering PSA in its India comeback story. The two will, in all likelihood, team up for an ASEAN innings where the building blocks will start coming into place from 2018. Perhaps, this will begin with a facility in Indonesia which is now seen as a strategic pillar in ASEAN.

The mother plant will then begin supplying kits to other countries in the region like Thailand, Taiwan, Malaysia and the Philippines.

Like other Chinese automakers, Dongfeng would be as keen on spreading its wings overseas and a well established ally like PSA would lend more credibility in the branding effort.

What then could stop the two from trying out something similar in India with a larger basket of competitively-priced products? After all, SAIC sought this route with GM some years ago and is reportedly still keen on making an entry here.

There are a host of options available but India is not the easiest of markets to operate in. Barring Suzuki and Hyundai, almost every other big global brand is struggling to grow volumes here. How then will PSA be different and try to buck the trend?

It is not going to be easy but, equally, there is little point ignoring a market that is on its way to becoming the world’s third largest in cars by 2020.

Published on April 07, 2016

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