PARIS (Bloomberg) -- PSA/Peugeot Citroen's dependence on European sales means it has suffered more than most of its rivals as Europe's car market has plunged over the past five years.
The carmaker is now looking to fix that with a stripped-down sedan aimed at emerging markets. The Peugeot 301 went on sale Nov. 1 in Turkey and will be rolled out in Eastern Europe, Africa and South America in coming months. The goal is to gain a foothold in places with more growth potential than saturated western Europe.
"We want to attack these new markets," said David Rio, director of the Peugeot brand's international operations. "We have a vehicle of conquest, and have great faith and hope."
PSA has been depleting its cash reserves over the past year at a rate of 200 million euros ($260 million) a month because of its reliance on Europe, where demand for 2012 is headed for its biggest drop in almost two decades.
In the nine months through September, 64 percent of PSA's sales were in the region, versus 42 percent for Volkswagen. Without sizable operations in growing countries like China and Brazil to take up the slack at home, Europe's second-largest carmaker has had to cut prices to keep selling cars. PSA dealers in Germany offered discounts averaging 14.2 percent off the list price in September, up from 12.5 percent a year earlier, according to trade publication Autohaus PulsSchlag.
The bigger discounts haven't kept PSA's market share in Europe from sliding to 11.8 percent through September from 12.6 percent a year ago. In comparison, VW has boosted its share by 1.6 percentage points to 24.8 percent, according to the ACEA auto-industry trade group. In total, PSA's auto division lost 662 million euros in the first half.
The 301 is a stretched version of Peugeot's 208 hatchback, which designers say will appeal to consumers in emerging markets, who prefer roomy trunks. The Paris-based manufacturer is aiming for sales of 150,000 301's annually by 2014, equivalent to about 4 percent of its deliveries last year.
"Peugeot's volume targets are quite optimistic," said Carol Thomas, an analyst with LMC Automotive in Oxford, England. "A car for emerging markets needs to be affordable, durable and cheap to run," and the 301 is priced above key competitors. In Turkey, the 301 starts at 29,900 lira ($16,700), 2,500 lira more than the Renault Symbol and 8,650 lira above the Dacia Logan from rival Renault.
PSA's Rio said the car is aimed at middle-class buyers in emerging economies, so its primary competition isn't the no-frills lineup from Renault's Dacia nameplate. Instead, it's intended to compete with the Symbol, Hyundai's Accent Era and the Chevrolet Aveo, Rio said in an interview.
While PSA wants to avoid a direct comparison with the Logan, which was designed from the get-go to be cheap, the Dacia model was its initial inspiration. In 2008, former CEO Christian Streiff was looking to emulate the Logan, which Renault has built in Romania since 2004. After considering a totally new vehicle to be produced in Latin America and Turkey, tight finances led Peugeot to re-engineer the 208 and build it in an existing factory in Vigo, Spain. While upfront investment is lower, the downside is that labor in Spain runs at 25.50 euros an hour, five times more than in Romania, according to data from German auto association VDA.
"There are two ways to do a low-cost vehicle," said Philippe Houchois, an analyst with UBS in London. "Either you take a western car and remove some of its content, keeping it relatively expensive, or you do as Renault did and start from scratch."
To compensate for the higher costs and not drag down the Peugeot brand, the French carmaker made the 301 more upmarket than Dacia's models. The car features options such as digital audio with Bluetooth, hands-free trunk access and a system that helps brake the vehicle in an emergency.
The 301 will have as many as four airbags, versus six in the 208. The engines available for it are less powerful than those offered in European counterparts. And it won't have a touch-screen display or a system that automatically shuts off the engine at traffic lights to conserve fuel.
With rivals such as VW, General Motors and Fiat already active for decades in China, Brazil and other emerging markets, the 301 -- like PSA's past efforts outside Europe -- may be too much of a compromise to stand out from other mid-sized sedans, said Jens Schattner, an analyst at Macquarie Group.
"The market for these kinds of cars is the toughest," Schattner said. "Peugeot's trying to internationalize their business. The problem is that they're always late to the party, with often the wrong product."