Global Insight Perspective | |
Significance | PSA Peugeot-Citroën will invest US$500 million in its operations in Latin America, promising 12 new models, with which it hopes to double sales by 2010. |
Implications | PSA's Latin American strategy makes all the right noises, but along with much of the CAP2010 plan it remains unconvincing in its depth, and again disregards the heated nature of the market and the ambitions of the competition. |
Outlook | PSA has the production capacity to achieve its ambitions in Brazil and Argentina, but its goal of attaining an 11% market share by 2010—a 1.0-percentage-point gain per year—relies on continued strong demand and consecutive product hits in a competitive market. Intense competition and a flattening of the markets mean that PSA is likely to achieve more modest gains in the region, and it may find that it has taken too long to jump on the Latin American bandwagon. |
PSA Peugeot-Citroën's general director for Brazil and Mercosur, Vincent Rambaud, has announced details of the company's plans to expand production and gain market share in the Latin American region. Speaking at a press conference in Rio de Janeiro (Brazil), Rambaud said that PSA will invest US$500 million in Argentina and Brazil, introducing 12 new models, and that it aims to capture an 11% market share in the region by 2010. Rambaud also said that PSA will add a third shift at its plants in Porto Real, Rio de Janeiro state (Brazil) and Palomar, Buenos Aires (Argentina). The company wants to increase its sales in Mercosur to 300,000 units in 2010 and to 400,000 units in 2015. At the Porto Real plant, the additional shift will start operations this December, increasing annual capacity from 100,000 to 150,000 units (see Brazil: 28 August 2007: PSA to Raise Output at Brazilian Plant).
"We'll be adding at least one [percentage] point a year through 2010 in market share...We'll invest in the industrial part and in launching 12 new models", Rambaud told reporters. PSA produced 160,000 vehicles under the Citroën and Peugeot brands in the region last year and secured a market share of around 7%. The Mercosur trade bloc includes Brazil, Argentina, Paraguay, and Uruguay, with Bolivia, Chile, Colombia, Ecuador, and Peru associate members. Venezuela is currently bidding to become a full member, although the economic and political stance of the country may present difficulties.
Outlook and Implications
PSA Peugeot-Citroën announced expansions of its workforce across the region in August and earlier this month. The company plans to expand its workforce at the Porto Real plant by adding 700 workers for a third shift. The additional workers will help boost capacity by 50,000 units per annum (upa), although details of the further new models it intends to launch have not been given. Capacity at the plant will now reach 150,000 upa with the additional shift. Furthermore, PSA announced the Argentine part of the investment earlier this month, when CEO Christian Strieff outlined the CAP2010 plan (see World: 4 September 2007: PSA Peugeot-Citroën Targets Operating Margin of 5.5-6% by 2010). US$221.5 million of the investment is expected to find its way to the company's Argentine El Palomar and Jeppener plants through to 2010, increasing capacity through the addition of a third shift and raising total annual output in the country to 170,000 units from 125,000 currently. The investments include a ramping-up of production at its transmission joint venture (JV) with Fiat to 140,000 upa, 70% of which will be exported.
PSA's CAP2010 strategy focuses on the need to expand in emerging markets, and the scale of this investment indicates that it is serious in its intentions and ambitions for the Latin American region, which will provide some 20% or more of the company's planned 650,000-unit increase by 2010. In addition to the plans to ramp up production and sales in the Latin American region, PSA is encouraging its suppliers to seek production locations in strategic low-cost regions. The company has urged suppliers to make a "profound change" in their relationship with the group and to "develop their production base in low-cost countries" to help the French auto manufacturer meet its 2015 target of becoming the most competitive player in Europe, according to a report earlier this month (see France: 10 September 2007:Peugeot Asks Suppliers for More Production in Low-Cost Countries). The statement followed a meeting in Poissy (France) last Thursday (6 September) with over 500 suppliers from 25 countries, which was attended by purchasing manager Jean-Philippe Collin and group chairman Christian Streiff.
PSA Peugeot-Citroën certainly has the plant capacity in Brazil and Argentina to achieve its production ambitions, with the likelihood that exports will be driven from Argentina, with the Brazilian operations concentrating on the booming local market, as currency and base costs dictate that to be the most prudent policy. However, the company's sales ambitions seem less achievable in the context of a forecast flattening-out of the market in 2008/09. PSA’s goal involves significant further growth in the region, gaining 1.0 percentage point per year in market share against the major players, Fiat, Volkswagen (VW), and General Motors (GM), all of which have their own growth plans, and it appears a highly ambitious target that relies on the models it introduces being instant successes. PSA is currently only a small player in the main Brazilian market, lagging behind even Ford, whose manufacturing capabilities are not equal to those of PSA. Whereas the company’s Brazilian passenger car sales rose 27.2% to just over 75,000 units in January-August, the headline growth rate for the passenger car market during this period was 27.47%. PSA is staking much of its plan for global sales growth of 20% to 4 million units by 2010 on its Latin American strategy and rejuvenation of its Chinese operations; however, as with much of the CAP2010 plan, this strategy remains unconvincing given the stated ambitions of the competition in this region and the fact that there will be some winners and losers.