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Business Trends

Will Chinese consumers like the new Peugeot and Citroen SUVs?

French carmaker PSA says it will take a while to get back on track in China

PSA displays its SUV model Peugeot 5008 in Wuhan, China on Oct. 2017.   © AP

PARIS -- After a difficult year in Asia, French automaker Groupe PSA is hoping that Chinese consumers will warm to its new Peugeot, Citroen and DS SUVs in 2018.

Despite reporting an overall increase in sales in 2017, PSA sold just 387,000 cars in China and Southeast Asia, a 37% year-on-year plunge, marking a third consecutive year of falling revenue in those markets. Chief Financial Officer Jean-Baptiste De Chatillon said the company would now miss its own target.

"It's clear now that our objective of selling 1 million in the region by 2018 will not be met," said De Chatillon in a recent interview with the Nikkei Asian Review. PSA plunged into an operating loss of 4.698 billion euros ($5.82 billion in current value) in 2012 in the aftermath of the European debt crisis, but was rescued from the brink by the French government and Dongfeng Motor Group, which now owns 13% of the company.

Part of the reason for PSA's lacklustre sales in Asia was due to stiff price competition. De Chatillon said that PSA sold its vehicles at low prices in China and were unable to offer good after-sales service, resulting in a drop in demand for its brands.

"It was a human error," said the CFO, adding that PSA's sales network in China, where it has plants in four cities, was not yet well-established. Full recovery could take a few years because he said PSA needed to better train its local retail and marketing teams and "resetting the foundations to the right level should take time." PSA will also be focusing on improving productivity so that it can keep prices low in the fiercely competitive market.

Meanwhile, De Chatillon is hoping that PSA's new compact SUVs such as the Peugeot 4008 and the Citroen C5 Aircross, as well as the seven-seater Peugeot 5008, will draw greater interest in China. "The Chinese market has changed very rapidly in favor of SUVs in the last two years," said De Chatillon. Indeed, SUV sales in China were up 13.3% in 2017, according to China Association of Automobile Manufactures, making up more than a third of total sales.

Through its partnership with Chinese manufacturer Chongqing Changan Automobile, PSA will also be launching new models, including SUVs, for its high-end brand DS, at a rate of one per year from 2018.

The Chinese automotive market had been growing at a clip in recent years, with total sales rising 14% between 2015 and 2016. But that pace slackened significantly in 2017 to just 3%, in part due to a doubling of sales tax -- from 5% back to 10%, the level it was at before 2015 -- for cars with engines smaller than 1.6 liters.

PSA CEO Jean-Baptiste De Chatillon speaks to the Nikkei Asian Review in Paris (Photo by Tallulah Lutkin)

PSA's market share in China is less than 2%. The two biggest foreign-controlled companies in the region, Volkswagen and General Motors, sold over 4 million cars, respectively, in China in 2017.

Globally, PSA performed better, with sales rising 15% to 3,632,000 cars in 2017, mainly due to the acquisition of two European brands from General Motors, Opel and Vauxhall. It recorded an operating income of 2.611 billion euros in 2016, after marking a turnaround in 2014 with the arrival of CEO Carlos Tavares.

PSA is also hoping to expand in Southeast Asia, despite failing to buy Malaysia's Proton in 2017. Part of PSA's plan is to open a launchpad in the region in 2018, and the company is mulling different ideas. "Buying up a company is a possibility but it could also be a greenfield or a partnership with a local actor," he said. "All options are open."

As part of its electric vehicle strategy, PSA said in December it would set up a joint venture with Japanese electric motor company Nidec to produce the engines. "Our combined expertise will make us the champion of the production of electric motors", De Chatillon said. PSA wants all its models to be available with either electric or thermal engines by 2025 through flexible assembly lines.

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