On the Fast Track
Automaker PSA is in a race to acquire Proton of Malaysia while growing its Vietnamese presence with Chinese ally, Dongfeng Motor.
Where it seemed vulnerable at one point and had to be thrown a lifeline, today it has turned predator with plans to acquire Opel from General Motors in Europe while Proton of Malaysia has become its latest acquisition target in Asean. It is also within this region that PSA has recently announced its intent to accelerate operations in Vietnam. India, meanwhile, is a critical part of the Asia plan, where an alliance has just been inked with the CK Birla group.
PSA Chairman, Carlos Tavares has played a key role in spearheading the turnaround where the other important trigger is Chinese ally, Dongfeng Motor. It was this company, along with the French government, which bailed out the French automaker when it was virtually down and out. Tavares then came on board from a previous stint as Chief Operating Officer of Renault and the journey since then has been astonishing in terms of the pace of revival. Asia/Asean strategy will be critical for the PSA going forward. Sure,the Opel acquisition will help it emerge the second largest player in Europe after Volkswagen but it is this part of the world, which is firing on all cylinders in the automotive space. China, of course, is the biggest growth engine apart from already being the largest market globally with sales of over 25 million cars annually.
PSA has already identified Dongfeng as its strategic partner for growth in both China and Asean and this is where some interesting dynamics will come into play in the coming years. In a way, the closest comparison can be made to General Motors and its Chinese partner, SAIC Motor Corp, which in tandem are keen to spread their wings across the world.
It was a couple of years ago when PSA had, in an investor presentation, indicated that it was important to ‘unleash PSA China’s strengths to tackle the world’. As part of this plan, the French group said it would endeavour to transform a growth story into a performance driver by enhancing brand value in China through a global brand positioning.
The country would be a pillar of the core model strategy involving R&D synergies through partnerships. Significantly, Chinese vehicles would be developed on global programmes as part of the roadmap. PSA, in its presentation, had indicated that there were nearly 3,000 people dedicated to R&D in Shanghai, Wuhan and Shenzen. The areas of research include vehicles, powertrain and connectivity. Reiterating that the Chinese R&D teams are ‘operational and highly qualified’, it spoke of the Peugeot 408 sedan, Citroen C3XR, DS5 and DS6 that have been developed in China. The overall objective was to ensure a substantial global basket from China where 76 per cent of the local range would be common with Europe or other regions by 2022. The first global programme, C-CUV, will see five vehicles and four brands (Peugeot, Citroen, DS and Opel) assembled in China and Europe with Dongfeng, Changan and GM/Opel as allies.
Tavares is clearly working towards a plan that will see the maker of the Peugeot and Citroen brands quickly scale up its global ambitions. This will involve consolidating its presence in China with Dongfeng while quickly putting in place the building blocks for Asean. The India plan has just been announced, where the cost outlay is modest at barely Rs 700 crore thanks to the availability of a ready-to-use plant. It will be interesting to see if Dongfeng will also make an entry into the country at some point in time. For the moment, the duo will focus on Asean but it is only logical to infer that this could also extend to, what will emerge, the world’s third largest market by 2020.
After all, there are already other Chinese players such as SAIC, Changan Automobile and Great Wall Motors keen on entering India and there is no reason why Dongfeng will not follow suit either once its French partner has set the base in order.
It is, therefore, very likely that the rapid sequence of events unfolding in Asean, be it the Proton bid or assembly in Vietnam, has also factored in Dongfeng as part of the strategy. This will be in line with the plan to jointly grow their Asean presence where China will be a key supply source for kits and cars. It is equally interesting that another Chinese company, Geely (which owns Volvo Cars) is also in the race for Proton, which perhaps means that Malaysia could end up becoming an important hub for the eventual acquirer. With the Asean Free Trade Area in place, meeting the needs of other countries such as Indonesia, Taiwan, Thailand, Vietnam and the Philippines will be easier to handle from Malaysia for the PSA-Dongfeng combine. This is, based on the assumption that it is successful in snapping up Proton where it is up against Geely and perhaps a couple of challengers more.
Asia/Asean strategy will be critical for the PSA going forward. Sure,the Opel acquisition will help it emerge the second largest player in Europe after Volkswagen but it is this part of the world, which is firing on all cylinders in the automotive space. The areas of research include vehicles, powertrain and connectivity.