As Citroen heads for India, PSA eyes larger global play

Murali Gopalan | Updated on: Mar 07, 2019

Eyeing new frontiers Carlos Tavares, Chairman of Groupe PSA

French auto brand is likely to leverage India’s competencies for other emerging markets

India was an important component of the presentation made by Carlos Tavares in Paris last week. It was during this long session, lasting a little over two hours, that the Chairman of Groupe PSA made known that Citroen would be the brand face for the country.

As Tavares reiterated, Citroen was all about consistency across time, models, design and fair pricing. “We are positioning it as the comfort brand, the modern and trending brand,” he said.

Citroen and India

Citroen will debut in India by 2021 and Groupe PSA already has the building blocks in place by way of a powertrain plant, vehicle plant and partner. The French car-maker is now building a network to prepare for the new “disruptive family” of international products sporting the Citroen brand.

What is more important going forward is the role India will play at a global level. For now, Japan is the biggest success story in PSA’s India-Pacific, but there is no question that the subcontinent will be the bigger growth engine a couple of years down the line. After all, India is on its way to becoming the third largest automobile producing nation in the world after China and the US.

Japan, on the other hand, has an ageing population where demand for cars will logically begin falling or the market will remain flat. India offers tremendous potential by virtue of its size, low penetration levels for cars and growing levels of affluence in its middle-class segment. Further, with two-thirds of the country under the age of 30, it translates into tremendous opportunities for manufacturers like PSA.

Beyond this, the fact remains that China is slowing down even while its annual output of cars is ten times that of India. In the case of PSA, it really has not been doing too well there in its joint venture with Dongfeng Motor. Tavares admitted as much during his presentation saying that China was “one of our big frustrations” and that the company was clearly not happy with what it had achieved thus far.

The only good thing was that by virtue of being a small player, it would be less vulnerable to the impact of a slowdown unlike bigger participants that could feel the pain a lot more. According to Tavares, the market has changed in China and it was now an opportunity for PSA to come back with a new business model in 2019 “since the current situation is simply not acceptable”.

China positivity

The good news emanating from China is in the French auto brand’s parts and service business, which have been growing well and will continue to do so in the coming years. Will this mean that the alliance between PSA and Dongfeng will see some structural changes due to the poor showing thus far?

There is no clear indication yet even though it was the Chinese auto-maker that threw a lifeline to the then beleaguered French company gasping for survival not-so-long ago. It holds a 14 per cent stake in PSA (as does the French government) and there were big plans at one point in time to use the China base to export kits to the ASEAN region.

This does not seem too likely to happen right now even while Tavares said at the presentation that PSA was extremely upbeat about its ASEAN prospects thanks to effective leveraging of the Malaysian facility. The region, he added, had seen efficient growth and volumes could double by 2021.

Once again, while nothing was said, there is no telling what role India could play in the future in terms of its larger global reach.

After all, it is going to be home to top levels of frugal engineering and manufacturing competencies. Beyond the domestic market, PSA will doubtless be keen on looking at other regions in ASEAN, Latin America and Africa to make the most of what India has to offer and also strive for economies of scale.

Latin America is not in great shape right now for the automotive industry thanks largely to Brazil and Argentina. As for the West Asia andAfrica, PSA has big plans for its facilities in Morocco and Algeria while the Opel brand will be leveraged in Namibia.

While Citroen will be the face for India, Peugeot will drive PSA in North America. As Tavares reiterated, Peugeot is a brand that is about excitement, better acceleration and being fun to drive despite zero emissions.

North America outlook

The plan for North America is to be “highly creative” and look for a disruptive product strategy while combining “significant amounts of frugality”. PSA will also source extensively from Europe and China though the business plan will eventually hinge on the prevailing tariffs between the US and Europe.

“We will be frugal on the sourcing side and creative on distribution,” said Tavares. From PSA’s point of view, it has a big strength in the form of competent engineers from Opel and Vauxhall (the brands it acquired in 2017) who have formerly worked for General Motors’ range in the US.

Opel, meanwhile, will be back in Russia where sales stopped two years ago. All in all, said Tavares, Europe has been a success story for PSA and represents a triumph of pricing power, cost reduction and market share. Needless to add, Opel and Vauxhall have been important components of the comeback script.

Tavares also made it clear that the year that just went by was “highly chaotic” with chaos in geopolitics, regulatory matters, Brexit uncertainty, social chaos, environmental chaos, raw material cost increases, etc. During these hard times in 2018, he was particularly pleased that his colleagues at PSA displayed tremendous team spirit, focus and agility.

Along with their new colleagues at Opel Vauxhall, which is now delivering operating profits, the team has embraced three core values. The first is to win together where the idea is to work as a team and not in silos. The second aspect is agility, which Tavares said was more important than size especially in a chaotic environment. “We have to adapt to a new world, trends and expectations. It is important to move quickly,” said the PSA chief. Finally, it is about efficiency where the goal is doing more with less. “It is not going to be easy but we need to aim at Number one in everything we do. Performance matters eventually,” he said.

Tavares was quite candid in stating that the group had not yet reached the desired levels of excellence and it was, therefore, imperative to push the envelope while “challenging ourselves to be better”. While the present business plan comes to an end in 2021, there will be another one following suit.

The next plan

As Tavares elaborated, the next strategic plan will be presented in April 2022 and this will be of an enlarged PSA where Opel and Vauxhall are the new members of the family. It will be a nine year plan going on till 2030 and truly longterm with “three legs of three years each” where objectives will be outlined in each of these intervals.

It is more than likely that India will find greater prominence in this extended plan. By this time, Citroen will have kicked off its innings and, hopefully, reached out to customers effectively with its range of products.

From Tavares’ point of view, the focus for Groupe PSA will constantly be on top class engineering and customer satisfaction . The number of models in the Peugeot, Citroen and DS family have been reduced from 53 to 43 between 2014 and 2018. The idea is become more competitive, focussed and do well with less fragmentation of resources.

With Opel and Vauxhall, 19 models have been added to the enlarged PSA, which means the number is up to 62. However, this will be down to 49 by 2021 with five brands. “We like challenges and our agility combined with team spirit will help us avoid traps,” said a confident Tavares.

Published on March 07, 2019
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