BEIJING: PSA Peugeot Citroen plans to create an all-new passenger car brand in China based on models from Chang'an Automobile Group, its newly courted local partner, to tap the world's biggest vehicle market, according to an anonymous industry source with knowledge of the matter.
The two parties signed a letter of intent on May 6 to set up a 50-50 joint venture producing "environmentally friendly passenger cars" and light commercial vehicles, the source said without revealing further details.
The industry insider added that light commercial vehicles made at the joint venture will carry the Peugeot or Citroen marque.
The plan reveals another dubious shift by the French carmaker to further its interests in China's vehicle market, where it trails a phalanx of international rivals and homegrown players.
The scheme is part of a dual-partner trick by PSA Peugeot Citroen to check its existing long-time associate, Dongfeng Motor Corp. The two companies run a joint venture in the city of Wuhan assembling Peugeot and Citroen passenger cars.
But the French carmaker's short lineup doesn't offer enough new passenger car models for its latest sweetheart, Chang'an.
So PSA Peugeot Citroen will create a new brand based on passenger car models from Chang'an.
But there is doubt what passenger car models Chang'an could offer and whether they will have competitiveness in China's robust car market and among rapidly maturing consumers.
Chang'an is one of China's top minibus producers. It also partners with Ford and Suzuki to make passenger cars. It began making its own-brand cars several years ago.
The Peugeot and Citroen brands are not well recognized by Chinese car buyers due to poor branding strategies, so an all-new marque would be even more obscure.
Hyper-competition is expected in China's passenger vehicle market where, according to JD Power, there will more than 90 brands and 300 locally made models contesting for buyers by 2015.
Troubled relationship
As well, PSA Peugeot Citroen's dual-partner ploy will exacerbate its troubled relationship with Dongfeng, which is also a partner of Nissan and Honda.
Cooperation between PSA Peugeot Citroen, one of the first foreign carmakers in China, and Dongfeng can be traced back to 1992 when Citroen set up a joint venture with the Chinese group.
In 2004, Peugeot joined the joint venture after it bitterly pulled out of its failed project with Guangzhou Automobile Group in 1997 due to huge losses and poor sales of its outdated models.
The partnership with Dongfeng too suffered due to the French group's lackluster choice of products, insufficient localization and poor branding efforts.
Last year, PSA Peugeot Citroen sold only 272,000 cars in China, less than one-fifth of Volkswagen's deliveries in the country.
Worse is its failure to reflect on its own problems, instead laying the blame on Dongfeng.
"The joint venture with Dongfeng is not successful and we are also unsatisfied with a mere 3.5 percent market share in China," PSA Peugeot Citroen's China CEO Claude Vajsman told the media on May 6.
Vajsman announced that the French carmaker aims to sell 2 million vehicles a year and grab 10 percent of the auto market in China by 2020.
Vajsman also boasted that the French carmaker has not put its "specialty" in the light commercial vehicle sector into practice in China.
Yet it will make light commercial vehicles in China with Chang'an rather than its established partner Dongfeng.
Dongfeng must be a decent partner, or at least not a bad one, as it is getting on well with Nissan and Honda.
Its joint venture with Nissan moved 600,000 passenger cars last year, more than double the sales of its tie-up with PSA Peugeot Citroen.
The light commercial vehicle segment, only a small share of the market in China and elsewhere, will do almost nothing to help PSA Peugeot Citroen achieve its high-flying sales goals.
Attempting to placate Dongfeng, which is angry at PSA Peugeot Citroen's association with Chang'an, the French carmaker unilaterally announced that it intends to build a third plant for its joint venture with Dongfeng.
No response
Dongfeng has to date not responded to the French carmaker's overture.
The tie-up already has two factories making the Citroen C2, C-Quatre, Elysee, C-Triomphe, C5 and Xsara Picasso, as well as the Peugeot 207, 307 and 408, with a combined production capacity of 450,000 cars a year. But 40 percent of the capacity remains idle due to inert sales.
Dongfeng is also in top gear in its own-brand passenger car business.
It's clear that PSA Peugeot Citroen even doesn't know how to properly communicate with Chinese people.
Here are two examples.
A media friend of mine told me that when the French carmaker's new global CEO Philippe Varin attended a ceremony in Wuhan for completion of its second plant with Dongfeng at the end of last year, he unexpectedly gave his Japanese-language business cards to the Chinese media.
More surprising is what came after finishing a group interview - he said "thanks" to the media in Japanese, according to the friend who was on the scene.
The faux pas, which I don't believe Mr. Varin made intentionally, made him a laughingstock in the Chinese media.
I personally believe he was well aware he was in China, not Japan. And as a French speaker, it's not that strange he doesn't know the difference between the Chinese and Japanese languages.
So perhaps Varin can be excused, but it was still a major blunder for PSA Peugeot Citroen China, especially those responsible for communications and public relations.
The misstep came after Citroen enraged many Chinese people at home and abroad at the beginning of 2008, as it advertised its strong sales in Spain with an artificially distorted portrait of late Chinese leader Mao Zedong's face.
The French carmaker then pulled the ad and apologized.
All of the mistakes, no matter if big or small, show that PSA Peugeot Citroen has failed to read the Chinese market.
The French carmaker - if it doesn't want to meet its own Waterloo in China again - needs to learn some of the local dances rather than simply seeking a new partner to play checks and balances.
