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There is no official word yet, but it could be only a matter of time before PSA Peugeot Citroen and Dongfeng of China come together in a new global alliance.
For weeks now, the Western media has been abuzz about this partnership, expected to be sealed in the coming months. When it does happen, it will mark yet another giant step forward by China in its quest to become a global automobile powerhouse.
The structure being discussed is an equity alliance between the French Government and Dongfeng, which will infuse much-needed funds into the beleaguered PSA.
Beyond Europe
There is a logic to this business model. PSA is doing well in China with sales of over 400,000 vehicles during the January-September 2013 period. The company’s business beyond Europe accounted for 42 per cent of sales (876,000 of a little over two million units) during this nine-month period.
While Russia and Latin America are a critical part of this global strategy, the biggest growth potential is clearly in China.
Against this backdrop, it makes sense for PSA to team up with an ally with whom it is already manufacturing cars (in China).
It is also the best bet for the company to stay afloat, especially when Europe, its key market, is not out of the woods yet.
Today, practically every American and European carmaker is looking towards China. The list includes Jaguar Land Rover, Volkswagen, Ford, GM, Renault and Fiat. Last year, PSA announced that it was teaming up with General Motors to bounce back to profitability in Europe.
By this time, the French carmaker had shelved its India plans since it just could not afford fresh investments.
This week, PSA announced along with its third-quarter results that the new small-car plan with GM was under review, which pretty much signalled that nothing much could be expected. Within auto industry circles, the message was loud and clear: GM and PSA were heading for a split.
Advantage China
From China’s point of view, it is already sitting pretty as the world’s largest producer of cars; but it would like associations with top brands. Geely has already bought out Volvo cars, while SAIC Motor Corp is a critical ally for General Motors.
The GM-SAIC combine is not only successful in China but is also keen on taking this partnership to other parts of the world.
India was one such destination, when GM was literally down and out during the 2009 global crisis.
The American automaker turned to SAIC for support and an equity alliance was forged to launch vehicles in India and later across the Asia-Pacific.
Will PSA and its new ally attempt something similar once their partnership is sealed in the coming weeks? Like its Chinese counterpart SAIC, Dongfeng is keen on establishing a worldwide presence. This could even include India, where PSA was among the earliest entrants in the 1990s and the first to depart a couple of years later.
The French Government will, of course, be keen to drive home the message that PSA will remain a home-grown company. This remains to be seen, especially when Europe is still not showing any signs of revival.
Where does this leave Indian carmakers? Tata Motors has JLR in its kitty, while the Mahindras own SsangYong of South Korea. Is this enough to keep pace with the Chinese juggernaut? For the moment, the aces are clearly loaded in the latter’s favour.
>murali.gopalan@thehindu.co.in
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