Peugeot Opens Third Chinese Auto Plant as Europe Slides

PSA Peugeot Citroen, the unprofitable French automaker, opened a third assembly plant in China, expanding in the world’s largest vehicle market even as a slump in European demand prompts it to cut jobs at home.

Chief Executive Officer Philippe Varin, who flew in for the opening ceremony in Wuhan, central China, said the plant will help the company capture 5 percent of the nation’s market by 2015. The Citroen C-Elysee and Peugeot 301 sedan will be among four models produced at the factory, opened with Dongfeng Motor Corp., which will increase the company’s annual capacity by two-thirds to 750,000 units by the end of 2015, it said.

Peugeot’s expansion in China contrasts with its job cuts in France. The Paris-based automaker, which produced 40 percent of its vehicles at home last year, reported a 576 million-euro ($753 million) operating loss last year and has started implementing a restructuring plan that includes closing a factory on the outskirts of the capital and eliminating 11,200 positions in the country.

“China is probably the only way for PSA to get out of their difficulties in Europe,” said Klaus Paur, global head of automotive at industry researcher Ipsos in Shanghai. Peugeot’s reliance on Europe has “amplified” their problems, he said.

European Slump

European car sales fell to a 20-year low in May as record joblessness caused by a recession in the euro area reduced demand at Peugeot, Renault SA, Fiat SpA and General Motors Co. Political leaders are seeking ways to revive a shrinking economy weighed down by the sovereign-debt crisis, with unemployment in the 17 countries using the euro reaching a record 12.2 percent in April.

Dongfeng Peugeot Citroen’s sales in China surged 33 percent to 276,896 units in the first half of the year and the company is planning to introduce 11 models in the country until 2015, Dongfeng Peugeot Citroen General Manager Qiu Xiandong said today. That would put it on course to outpace China’s passenger-vehicle market, which has risen 15 percent in the first five months.

The automaker raised its sales target in China to 557,000 units this year from 500,000 units on improved demand, according to Gregoire Olivier, chief executive of Asian operations, in an April interview. China may overtake France as its biggest market by 2015, he said in February.

New Models

Jean Mouro, deputy general manager at Dongfeng Peugeot Citroen, said the company plans to introduce at least one model for each of its brands annually until 2015. The company plans to increase its dealerships in China to 1,200 by 2015 from 878 at the end of this year, Mouro said.

Peugeot sells three SUVs -- the locally produced Peugeot 3008, the imported Citroen C4 Aircross and Peugeot 4008 -- along with sedans and hatchbacks in China. The C2 and Peugeot 207, their lowest-priced models, start from 71,800 yuan ($11,700), according to the company’s website.

The French automaker will produce cars for its premium DS line in Shenzhen with Changan Automobile Group.

By making cars in China, Peugeot avoids tariffs that add at least 25 percent to costs of imported cars. Last month, GM started work on a new Cadillac factory in Shanghai while Ford Motor Co. opened an assembly plant in southern China that more than doubled its production capacity.

French auto brands increased their market share of passenger vehicles in China to 3.2 percent in the January-to-May period from 2.8 percent a year earlier, according to the auto association. They trailed American, Japanese, Germany and Korean marques among foreign automakers.