The ties between French car maker PSA Peugeot Citroën and its
Chinese partner, state-owned Dongfeng Group, are getting deeper, a
sign of China's growing influence on a global industry that has
become dependent on the country for growth.
At a news conference Sunday in Shanghai, where China's annual
car show kicks off Monday, the two said they would invest EUR200
million ($216.1 million) to develop a common platform for both
companies" next generation of small and mid-size cars.
The China boom for Peugeot, Europe's second-largest auto maker,
has been the lone bright spot as its sales in that market rose to
734,000 cars in 2014, up 66% from 2012. The jump in China business
came as sales in Europe continued to stall due to a slow European
economic recovery.
While Peugeot has made great strides in China, it still lags far
behind other foreign makers like Germany's Volkswagen AG and
Japan's Nissan Motor Co. Peugeot has only 4% market share with a
limited range of cars, points out Phillipe Houchois, a car analyst
at UBS. Moreover, Peugeot's three brands--the namesake flagship
marque, Citroën and DS--aren't clearly differentiated in the
Chinese market and lack recognition among consumers, he said.
Dongfeng's relationship with Peugeot, meanwhile, is being
closely watched by the global auto industry, intrigued by the
Chinese company's equity investment in the French manufacturer.
Dongfeng Group already owns 14% of Peugeot after it invested EUR800
million last year. Peugeot, which last year sold 2.9 million cars,
sold more in China in 2014 than in its home country for the first
time in its history.
Cars based on the new platform, which will allow the two
companies to share common parts during production, are expected to
hit the market in 2019, Peugeot said. Europe's second-largest car
company added in its statement that the common architecture will
allow it to tap into Dongfeng's supplier base, which in turn will
"make it possible to meet ambitious cost targets."
The investment, of which 60% will come from Peugeot, will also
go toward a new joint research-and-development center. Peugeot said
a team of Dongfeng engineers will be installed the French firm's
main technical center in Vélizy-Villacoublay, France.
"It has been exciting and rewarding," said Peugeot Chief
Executive Carlos Tavares, referring to the first year of the
partnership. "Our sales in China are quite significant and still
growing so it's an important contribution" to the recovery of
PSA.
He said the new platform is flexible and could create as many
models as needed, but is targeted at the smaller-car segment, which
he said is where the bulk of the market is.
"We have full confidence in the rejuvenation of PSA," said
Dongfeng Group Chairman Xu Ping.
Mr. Tavares's restructuring plan, announced just two months
after the capital injection that Dongfeng contributed to, targeted
emerging markets as a strategic priority to get Peugeot back on
track.
Dongfeng and Peugeot have also set a goal of reaching 5% market
share in China by the end of this year for their joint venture.
Construction of a fourth plant, which will start production in
2017, is slated to raise overall capacity to 1.5 million cars per
year.
Guillaume Saint, managing director, Automotive Asia Pacific at
consultancy firm TNS, said the Peugeot-Dongfeng marriage is unique
and is poised to help Peugeot catch up to its European competitors
who have long reaped rewards from the Chinese car market, which has
grown to become the world's largest.
"Peugeot's relationship with Dongfeng is a clear accelerator for
growth, " he said Guillaume Saint, managing director, Automotive
Asia Pacific at TNS, a consultancy firm.
Local Chinese brands have struggled in recent years, plagued by
quality issues and a second-rate reputation. But Mr. Saint thinks a
lower-priced local brand that integrates contemporary Western
technology could win over consumers.
Write to Jason Chow at jason.chow@wsj.com and Colum Murphy at
colum.murphy@wsj.com
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