PSA Seeks to Revive China Fortunes With SUV Factory in Chengdu

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  • Plant can produce 300,000 Peugeot, Citroen and Fengshen a year
  • PSA changed regional, joint venture heads to boost performance

PSA Group, caught in a slump in China sales despite an expanding market, will inaugurate a seventh factory in the world’s biggest car market this week focused on producing sport utility and multipurpose vehicles for its Peugeot and Citroen brands.

The plant in Chengdu in southwestern China will have the annual capacity to manufacture 300,000 Citroen and Peugeot vehicles, as well as the local Fengshen nameplate, as part of its joint venture with shareholder Dongfeng Motor Co. Production will start at the end of the year.

PSA’s joint venture sales in China dropped more than 19 percent in the first half to 297,000 units despite a tax cut boosting overall industry demand. The company is now planning to introduce 18 new models by 2020 in the country -- including five SUVs by 2018 -- to plug a gap in its lineup of mainly sedans at a time when increasingly affluent Chinese consumers are favoring larger vehicles. It has also replaced the executives leading the Asia region and DPCA joint venture and is focusing on keeping production costs in check.

Chief Executive Officer Carlos Tavares needs to jump-start growth in China in order to complete the turnaround that begun with Dongfeng’s bailout of PSA two years ago. As part of a plan called “Blue Upper”, the company aims to sell 1 million cars in China by 2021 while lowering production costs by 20 percent from 2015 levels. Last year, 63 percent of PSA’s vehicles were sold in Europe, versus 25 percent in China.

“The main factor impacting their sales is the lack of new models, the second one is a mismatch between what is in demand and what the company is offering” in China, said Benjamin Cavender, a Shanghai-based analyst at China Market Research Group. “The new models are going to help them right away, but it’s also a multiyear process of supporting the brands and investing in their presence here.”

PSA’s shares, which have declined 15 percent this year, rose 0.1 percent to 13.83 euros at 10:17 a.m. in Paris trading.

Chengdu Plant

The Chengdu factory will boost DPCA’s total capacity from 750,000 units a year. The partners already operate three plants in Wuhan, in the Hubei province of central China and manufacture engines and gear boxes in Xiangyang in the northwestern part of the country. PSA’s tie-up with Dongfeng was set up in 1992 and intensified two years ago when the Chinese manufacturer acquired a 14 percent stake in PSA as part of a bailout.

PSA also has a partnership with Chongqing Changan Automobile producing premium cars with the DS nameplate in Shenzhen. DS sold just 8,740 units in China and Southeast Asia in the first six months of this year.

To boost performance in China, PSA said in July it was replacing Gregoire Olivier with Europe chief Denis Martin. Olivier is now at the helm of a new mobility services department. The company had replaced Jean Mouro, the head of DPCA, a month earlier.