Hyundai van plan signals rougher ride for PSA, Renault

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PARIS (Reuters) -- Hyundai is preparing to enter the European commercial van market with a Turkish-built vehicle, a source said, adding to signs that Renault and PSA/Peugeot-Citroen could lose their grip on a lucrative part of the auto industry.

Hyundai will debut a large van at September's Hanover truck show and begin production with Turkish partner Karsan next year, a person familiar with the plan told Reuters. Hyundai declined to comment.

The move follows Volkswagen's decision to build a second light commercial vehicle (LCV) in a lower-wage country, shifting production of its Crafter van to Poland from Germany.

Both new programs underscore toughening competition in the van market, which has already seen margins squeezed by heavy discounting but remains more profitable than mass-market cars.

That poses a particular risk to French market leaders Renault and PSA, which could now see models built in costlier western European plants, such as Peugeot's Boxer, Citroen's Jumper and the Renault Master, undercut by vans made in lower-cost countries.

"Light commercial vehicles are the category where competition is really much more fierce than before," Renault sales chief Jerome Stoll told analysts on a recent call.

While LCVs account for only about 10 percent of all European vehicle sales, they make a significantly larger contribution to profit.

But discounting is intense despite recovering demand, which saw European van sales rise 10 percent in the first quarter.

Few manufacturers break down their profitability by vehicle type. Analysts say the estimated margins on the French groups' vans were about twice the 3-4 percent made on cars in better years preceding the 2008 financial crisis.

"If LCVs were a 6-8 percent margin business in the past, this may deteriorate for some as the cost spread between manufacturers widens," said Erich Hauser, an analyst at brokerage ISI Group in London. "VW would have been quite happy building its vans in Germany for ever, so clearly something has changed in this market."

Resisting the exodus from western Europe, the French have kept most production at home or in some cases even repatriated vans to fill gaps left by axed or offshored car programs.

Vans replaced cars at Renault's Maubeuge plant more than 20 years ago. The company is now moving its Trafic van from Spain to another northern French site as its aging Espace and Laguna car models wind down.

Renault's budget Dacia brand also builds vans in Morocco and Romania, accounting for a modest 7 percent of regional sales.

PSA is introducing new vans to its Sevelnord factory in partnership with Toyota to replace discontinued people-carriers previously built with Fiat.

While the two French groups still lead European registrations, their combined market share fell to 36.7 percent last year from 39.4 percent in 2010, IHS Automotive data shows. VW's share rose to 13.2 percent from 10.6 over the same three years. Ford, which halted UK production of Transit vans in 2012-13 to concentrate output in Turkey, advanced almost one point to reach 11.6 percent of the European market.

Backed by its lower-cost production, Ford is gaining ground with attractive discount offers on even its newest van models, ISI's Hauser said.

EurotaxGlass's, a leading market data provider, has charted a surge in price-cutting moves such as pre-registrations - where dealers receive new vehicles to sell as used.

Such margin-crushing van sales have increased 15-20 percent by volume since 2008 even as the overall market shrank by a quarter, technical director Dean Bowkett said.

"There are significant levels of discounting going on even in commercial vehicles, which is unusual," he said. "Historically it's always been cars that have been laden with pre-regs - but we're now seeing it with commercial vehicles as well."

Hyundai has yet to finalize pricing and other launch details for its new vehicle, according to the source, who described the production deal with Karsan as "a toe in the water." Karsan, based in Turkey's industrially developed Bursa province, already builds Hyundai light trucks for the local market as well as vehicles for other manufacturers' brands.

VW assembles its smaller existing Caddy van in Poznan, Poland, and is investing 3.4 billion zlotys ($1.1 billion) in a nearby plant to begin making Crafters in 2016, ending joint production with Daimler in Germany.

Stephane Chesnel, PSA's head of leasing to major fleet clients, said the prospect of a second Polish-built VW van was unlikely to alter the company's immediate plans. "That is Volkswagen's choice, but we are not changing our production as things stand today," Chesnel said in an interview.

Beyond the rebounding sales volumes, however, Chesnel sees signs that recession and austerity may have shaped demand in ways that prevent a return to pre-crisis margins. "Clients used to order vans with more capacity than they needed," he said. "Now they look closely at their requirement and try to reduce the volume of the vehicles they buy."

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