Global Insight Perspective | |
Significance | PSA Peugeot-Citroën and Mitsubishi have confirmed the long-expected news that they will collaborate in a manufacturing joint venture at the plant that Peugeot has already agreed to start building in Kaluga. |
Implications | The tie-up makes strategic sense for both companies, extending their existing relationship in which they have collaborated on the Mitsubishi Outlander, Citroën C-Crosser and Peugeot 4007 range of SUVs. The plant will manufacture this range of vehicles as well as other vehicles for Peugeot and Citroën. |
Outlook | The tie-up means that the costs of establishing the production site are shared, as are component supply networks and transport costs. These extra economies of scale should allow PSA and Mitsubishi to be more cost-competitive in this increasingly busy marketplace. |
PSA Peugeot-Citroën and Mitsubishi to Collaborate on Russian Production
PSA Peugeot-Citroën and Mitsubishi have formalised an agreement that will see them form a manufacturing joint venture (JV) to produce a jointly developed range of sports-utility vehicles (SUVs) and other passenger cars in a plant located in Kaluga, 180 km south of Moscow. The French carmaker has said that 300 million euro (US$465 million) to 350 million euro will be invested in the new facility, which it originally confirmed it was building in January (see Russia: 29 January 2008: PSA Signs Russian Plant Deal; Investment Worth 300 mil. Euro), with PSA taking a 70% stake in the venture while Mitsubishi will take the remaining 30%. The Kaluga plant will have an initial build capacity of 160,000 units per annum (upa) and will begin production in 2011 of the Mitsubishi Outlander, Citroën C-Crosser and Peugeot 4007, the range of jointly developed SUVs introduced by PSA and Mitsubishi over the last 18 months. About one-third of this initial capacity will be allocated to the joint SUV project, with the remainder of this capacity being taken up by PSA's mid-range passenger cars such as the new Peugeot 308 and the Citroën C4, with the partners hoping that the plant will have an eventual production capacity of 300,000 upa. Mitsubishi's recently launched D-segment Lancer may also be a contender for production at the plant at some point in the future.
In a joint statement PSA Peugeot-Citroën and Mitsubishi said, "The manufacturing diversity of this future joint venture is the perfect answer to the high growth of the Russian market in these two segments: mid-range vehicles represent 50 percent of sales in Russia and SUVs correspond to one of the most buoyant segments on this dynamic market." The companies also said in the statement that the plans marked a strengthening of their relationship after their collaboration on the Outlander/C-Crosser/4007. As a result it would appear that the two companies may pursue further technical collaborations on future passenger car projects. Speaking at the press conference to launch the project, chief executive Christian Streiff said the project was "a joint venture in the proper sense of the word", adding: "We have had real exchanges of technology and know-how." He also added that PSA and Mitsubishi hoped initially to take a 5-6% share of the Russian market, but this could rise to 7-8% as the plant expands. He also said that Russia was a priority market for Peugeot, alongside Brazil, China, and other countries in eastern Europe, although he made sure to state that the French domestic market remained the company's primary focus.
Outlook and Implications
The SUV segment is one of the fastest segments in the Russian market, and if one ignores the SUV-B segment which is starting from the lowest base, the SUV-D segment which the Outlander/C-Crosser/4007 all occupy is the fastest growing of all the SUV segments, with sales volume in Russia climbing by 95.4% y/y to 76,000 units in 2007. The Outlander is already the best-selling SUV-D contender in Russia, therefore it makes perfect sense for Mitsubishi to look to manufacture the car there. Once the model begins production at the Kaluga plant in 2011, Global Insight forecasts that sales will double on present volumes to almost 39,000 units, although this figure will also take in 4007 and C-Crosser sales by that point. However, the real benefit to PSA Peugeot Citroën will be the enhanced access to the Russian market for the company's mainstream, C-segment models such as the Peugeot 308 and Citroën C4. The C-segment is Russia's biggest selling segment, with sales increasing last year by 17.7% to 867,000 units. This figure is forecast to hit 1.09 million units by 2011 and PSA will be looking to secure at least a 10% share in this market with the 308 and Citroën C4, with Global Insight forecasting combined sales volumes of 134,000 units by that point. Mitsubishi and PSA Peugeot-Citroën will reduce costs and generate supplier economies of scale by collaborating on this project and it appears that this strategy will serve both carmakers well in the burgeoning Russian market.