India back on Peugeot’s global radar

It is a little over a year since Carlos Tavares took charge at PSA Peugeot Citroen. It was not until last week, however, when he indicated that the French carmaker would look at India as a potential investment destination.

Tavares, who is Chairman of the Managing Board, said in his presentation on the results for 2014 that PSA would study growth opportunities in India while also exploring its potential as a supply ‘best cost’ country. The company had planned to set up a facility in Sanand, Gujarat, over three years ago but was compelled to shelve its plans when it began losing market share rapidly in Europe.

It was at this point that PSA roped in General Motors as an ally but when that did not work according to plan, Dongfeng Motor of China and the French Government stepped into the picture with equity infusion. Today, both hold 14 per cent each in PSA and the priority is to grow beyond the confines of Europe which is just beginning to crawl out of a rather long slowdown.

Tavares, who moved in from Renault-Nissan, is keen that PSA moved towards a more ‘profit-oriented global mindset’ especially with Asia firing on all cylinders. China is a logical destination by virtue of the tie-up with Dongfeng which will see the creation of an R&D Tech Centre as part of the business plan. Going forward, the partners will jointly look at opportunities in the ASEAN region where Indonesia, Malaysia, Thailand, Taiwan and Vietnam are key markets.

However, it is India that will be an interesting play for PSA where it was among the earlier entrants when the country opened up to multinationals in the 1990s. The script, however, went horribly wrong as losses mounted followed by a rift between PSA and its local partner. In less than three years, the company abruptly shut shop in end-1997 and left dealers, suppliers and customers in shock. In 2001, there were attempts to make a comeback but the plans to make the 307 were dropped due to reasons of economic viability. Thereafter, PSA steered clear of India for many years even though there were teams that occasionally visited to make exploratory studies. It was not until 2011 that the group finally decided to opt for a plant in Gujarat but the global slowdown scuttled this plan.

With his global experience at Renault-Nissan, Tavares naturally would not like to see his present employer miss the India story. However, when he joined in end-2013, there were bigger issues to contend with at PSA as losses mounted by the day. A lifeline finally arrived in the form of Dongfeng and with a healthier balance sheet to reckon with today, Tavares is ready to focus on India all over again.

His presentation last week dwells on four important goals PSA needs to focus on: differentiate brands and improve net pricing; implement a global core model strategy; ensure profitable growth worldwide; and enhance core competitiveness. India is relevant to this vision as Tavares has already made clear that it has been identified as a ‘best cost’ destination for supply of parts. He is only too familiar with the competencies of vendors here who are already part of global projects since they meet top quality levels.

Consequently, PSA’s strategy for ASEAN along with Dongfeng could have considerable sourcing done out of India. This will ensure that costs are kept in check and this could get a further fillip in the short-term as the country forges free trade agreements with counterparts in the ASEAN region.

Tavares will be keen to see the emergence of a stronger PSA which envisages the emergence of 26 models across 23 user segments over the next seven years.

It is the other part of the India strategy, in terms of local manufacture, that remains intriguing. The most logical option would be to team up with Mahindra & Mahindra for a one-off product at its Nashik plant. This could be on the lines of what was done for Renault and the Logan in 2007. M&M recently picked up a controlling stake in Peugeot Scooters and it would be only natural to extend this alliance to cars. Using a readymade facility would be a better alternative to setting up a new plant as well as a dealer/vendor base where the investments would be very high.

It also remains to be seen if Dongfeng will be part of the India plan, in which case, it is not likely to factor in M&M.

China’s local automakers are keen to grow in new geographies as in the case of SAIC Motor Corp which joined hands with GM to carve out a new innings in India.

Things did not work according to plan and it will be interesting to see if Dongfeng is ready for a similar plunge along with PSA.

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