PARIS -- PSA Group has taken steps toward rebuilding its Chinese operations, signing an agreement with Changan Automobile to invest 500 million euros in the companies' joint venture and boost production at the underutilized DS plant in Shenzhen.
PSA and Changan said on Thursday they will further deepen their cooperation started six years ago to establish DS upscale brand in China. Their new agreement will see:
- Joint investment 500 million euros in 2017, shared equally between PSA and Changan.
- Launching one new DS model a year on the Chinese market, starting in 2018 with the DS 7 Crossback SUV. Future models will include plug-in hybrids and a full-electric vehicle, by 2019. A similar rollout schedule is planned for DS models in Europe.
- Establishing a regional DS headquarters in Shenzhen, with the goal of developing new export markets throughout Asia for Chinese-made vehicles and finding shared savings within the joint venture.
- Boosting utilization levels at the PSA-Changhan plant in Shenzhen, which has an annual capacity of 200,000 units. Output in 2016 was 15,000 vehicles, down from 22,360 in 2015. A PSA spokeswoman said possibilities include adding light commercial vehicles and pickups to the mix as well as producing Changan's own models there.
PSA has had difficulty to win and keep market share in China, as domestic manufacturers improved their products and cut prices, and consumer demand tilted in favor of SUVs and crossover vehicles. PSA's Chinese and Southeast Asia vehicle sales fell 48 percent in the first four months, with sales of the upscale DS brand plunging 67 percent in the region.
New business model
At the Shanghai auto show earlier this year, PSA CEO Carlos Tavares said that the company needed "a new business model" in China and to find more savings in purchasing, logistics and manufacturing. He has also vowed to lower production costs by 10 percent.
Like many foreign automakers, PSA has two joint ventures with domestic producers in China. Its main initiative is in Wuhan with Dongfeng Motor, which currently holds a 13 percent share in PSA after a 2014 investment in the then-struggling French automaker. Last year, PSA and Dongfeng's joint venture factories produced 561,560 vehicles in China, down from 688,300 in 2015.
PSA's joint venture with Changan, known as CAPSA, is much smaller than its tie-up with Dongfeng.
PSA has produced only DS models at the Shenzhen site since it opened in 2013, including the DS 4, DS 5, DS 5LS and DS 6.
CAPSA represented a negative contribution to PSA's balance sheet in 2016 of 292 million euros, including an operating loss of 29 million euros, versus a deficit of 50 million euros in 2015. PSA said the remainder of the negative margin in 2016 was due to a one-time write-down, or impairment, of earlier investments.
In an interview last month with Automotive News Europe, DS CEO Yves Bonnefont acknowledged that competition in China was "getting fiercer and fiercer" but that he thought foreign automakers still held an edge over domestic producers in the premium segment. "We still have a little advantage, so we need to move fast," he said.
The PSA spokeswoman said the automaker remained committed to adding a Southeast Asia production facility by 2018, even though the company recently lost a bid for a controlling share in the Malaysia's Proton to Geely.
