With a new form of JV, PSA embarks on market expansion in China

By: Wayne Xing   2010-07-19

PSA Peugeot Citroën (PSA) seems to be well aware of the changing conditions of China's cutthroat automobile market to act quickly and decisively in China.

The speed with which PSA signed its joint venture agreement with new partner Chang'an Automobile Group is in sharp contrast to its otherwise slow and protracted decision-making process over the past two decades.

The agreement came in only two months after the two parties signed a letter of intent on May 4. The new JV, to be based in Shenzhen, will not only produce light commercial and passenger vehicles under the group's two marque brands, but also a new JV brand. Moreover, the JV will feature an R&D center and distribute Chang'an brand vehicles as well, a first in China's joint ventures with multinational automakers.

PSA, the second largest automaker in Europe, has been a relatively slow mover in China, even though it was one of the first foreign car companies setting up manufacturing ventures. After the failed Guangzhou-Peugeot JV founded in 1985, PSA has since relied on Dongfeng-Peugeot-Citroën Automobile (DPCA), a joint venture established in 1990 with Dongfeng Motor Corp., for its China operations. But compared to some late comers such as GM, Honda, Ford, Toyota and Hyundai, PSA's sales volumes have not increased as significantly over the years.

With the new JV and a series of moves in recent months, including setting up its Asian headquarters in Shanghai, PSA seems to be intent on putting its conservative image to rest. The company has repeatedly indicated that its target is to double its market share in China from about 4 percent to 8 percent in six years, and eventually to 10 percent by 2020. Unlike his predecessor Christian Streif, PSA Group president Philippe Varin has placed China as a priority market and indicated that his visits to China in the future will be "frequent."

While establishing a new JV with another leading auto group in China will definitely offer PSA opportunities to expand in China, it does not mean a guaranteed success. Some of the hurdles PSA will face are how to balance its partnerships with Dongfeng and Chang'an, how to balance model launches between the two JVs and how to complement distribution channels of the two JVs, etc.

Perhaps PSA needs to look closely at Volkswagen and Toyota, both with two different partners, to learn about their successes and avoid some of their pitfalls.