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PSA on track with India plans even as slowdown persists

Murali Gopalan | Updated on October 10, 2019 Published on October 10, 2019

Carlos Tavares, Chairman of Groupe PSA   -  ARND WIEGMANN

Carlos Tavares, Chairman, believes these ups and downs are part of the car business

Carlos Tavares is not unduly concerned about the current slowdown in the Indian automotive sector.

“No, not at all,” he reiterates when asked if there is going to be greater circumspection going forward with the India strategy. “When you are working in this industry for a long time like me, there are a whole lot of ups and downs,” says the Chairman of Groupe PSA.

It is the French group’s Citroen brand that will debut in India towards the end of 2020 by which time the country will have entered the new Bharat Stage VI emissions era. Given the fact that its automobile industry is in the midst of its worst slowdown in recent years, there is no telling if things will look up next year especially when BS-VI offerings are going to be more expensive.

Brexit blues

Tavares is in the midst of a media roundtable at the Frankfurt Motor Show where a large part of the conversation quite naturally focusses on the imminent Brexit threat. Apart from Peugeot, Citroen and DS, Groupe PSA has recently added the Opel and Vauxhall brands to its portfolio. This only explains why Brexit should be a cause for concern more so when it is less than three weeks away now.

Getting back to this writer’s specific India question, Tavares makes clear that it is difficult to predict a slowdown for any carmaker to be able to enter and exit comfortably. “We have a very clear strategy for India and things are moving,” he says while driving home the point that the launch plans are on schedule.

According to Tavares, there is a tremendous focus within the Citroen team in India to be more competitive “in terms of costs, engineering, exports” and so on. “We could also use in a fruitful way the competitiveness of Indian sourcing,” he says, implying that key components will constantly be shipped out to keep the business plans ticking profitably.

In addition to its car plant near Chennai, PSA has also forged a partnership with its local partner, the CK Birla group, for a powertrain facility in Hosur. This is not only critical from the viewpoint of localisation and keeping costs in check but once again an opportunity for exports.

A Citroen brand presentation made last month shows that Europe is still its largest market (for 2018) with sales of 8.25 lakh units and growing. In contrast, all other key markets especially China, Africa, West Asia and Latin America have shown sharp declines in the net tally of 1.05 million units for 2018.

Citroen has now targeted sales of 1.5 million units for 2021 and it remains to be seen if this can be achieved given that China continues to be in the midst of a slowdown while little has improved in Latin America where markets like Argentina have virtually imploded.

This is where India will play a big role in the following decade especially in terms of servicing the ASEAN region as well as satiate demand in its own large terrain. Even while the present slowdown is worrying, there is no taking away the fact that India is the fourth largest car market in the world and well on course to overtaking Japan.

PSA has also been in the news when reports of a potential partnership with Fiat Chrysler Automobiles (FCA) began doing the rounds earlier this year. FCA, of course, reached out to Renault for a merger only to withdraw the offer in less than a fortnight.

Asked if he will still contemplate going with an ally for the future, Tavares says these are really “not the easiest of times for industry”. In his view, “during the next decade, the situation will be highly challenging for companies”.

This is because there will be a host of challenges to cope with on the technology front (for emissions, connectivity and driverless cars) even while geopolitical anxiety will persist in terms of trade wars, fuel prices and issues like Brexit.

“I think it is more important to stay focussed on getting things done properly, in managing things and making sure that products are of the right quality,” Tavares tells this writer. Eventually, as he puts it, PSA dealers need to take care of customers and make sure that they are happy. “The focus on business will be extremely demanding over the next decade given the challenges,” he adds.

In other words, Tavares believes that there is no compelling reason for PSA to scour for an ally on the lines of Toyota-Suzuki for instance. “If there is an opportunity, we will look at it but we are not looking for it,” he reiterates. This is simply because the French auto brand is pretty much sorted out in terms of “profitability, technology and management execution capability which we already have”.

It was earlier this year when Tavares made known at a press meeting in Paris that Citroen would lead the way for PSA’s India chapter. He said the building blocks were already in place, which included an “efficient powertrain plant and frugal vehicle plant”. The job on hand was to build the distribution network and pave the way for a new global family of “disruptive products”.

Citroen, the comfort brand

According to Tavares, Citroen as a brand represents consistency across time as well as in design and pricing. It is being positioned as the comfort brand which is both trendy and modern that will ideally strike a chord with India’s youthful customers. This fact is particularly significant when markets like Japan have a distinctly older buyer base while ASEAN likewise is reaching a stage of flat growth in the coming years.

While China is in the midst of a slowdown, there are no two ways about the fact that it is the world’s largest car maker by miles. PSA has not been doing too well in its alliance with Dongfeng and Tavares admitted as much in a recent presentation where he said China was “one of our big frustrations”.

The silver lining in the cloud was that by virtue of being a small player, PSA 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 had changed in China and it was now an opportunity for the French automaker to come back with a new business model in 2019 “since the current situation is simply not acceptable”.

It is a moot point if the alliance between PSA and Dongfeng will see some structural changes in the future. The Chinese automaker is a key ally and played a big role in PSA’s recovery some years ago when it seemed as if it would stuck in an abyss forever.

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

‘Push to Pass’ plan

While the present ‘Push to Pass’ business plan comes to an end in 2021, there will be another one following suit that will be presented in April 2022. It will be of an enlarged PSA where Opel and Vauxhall are the new members of the family. This nine-year plan will last till 2030 and be truly long-term 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 reached out to customers effectively with its range of products. It will also be hoping that the slowdown is a thing of the distant past.

Published on October 10, 2019
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