PARIS -- Chinese consumers' love of French brands has been a boon to Cartier and Louis Vuitton, and inspired Remy Cointreau to offer $80,000 bottles of cognac. However, their admiration does not yet extend to cars from Paris-based PSA Group.
PSA is now seeking to put its high-end SUVs on Chinese consumers' shopping lists. The company is betting that bigger, better vehicles -- such as the DS7 Crossback SUV and Citroen C5 Aircross -- will bolster margins and improve China sales, which plunged 40 percent through October to 276,300 vehicles.
"This market doesn't want face-lifted European cars, but new and increasingly connected cars," Denis Martin, PSA's head of China and Southeast Asia, said in an interview. He acknowledged gaps in the company's product offerings, with too many compact cars and too few SUVs at a time when increasingly affluent Chinese consumers are favoring larger vehicles.
China's burgeoning market is a crucial counter-weight for the automaker, whose reliance on Europe pushed it to the brink of bankruptcy three years ago. That dependence deepened this year with the purchase of General Motors's Opel/Vauxhall operations. Europe now accounts for more than 70 percent of the carmaker's sales.
Grabbing a bigger slice of the competitive and rapidly changing Chinese market won't be easy, said Benjamin Cavender, a Shanghai-based analyst at China Market Research Group. In addition to introducing attractive models that fill an appetite for larger cars, PSA will have to invest millions on new dealerships and a marketing blitz, he said.
It needs "to let people know what the brand stands for and why consumers should care," said Cavender. "Today, barely anyone knows about them."
CEO Carlos Tavares, who took over in 2014, moved Martin to Asia from Europe a year ago and swapped out the head of its joint venture with partner Dongfeng Motor Group. Now the company is looking to name a Chinese head for the Citroen brand after recruiting local marketing and sales managers, Martin said. It's also signing up Chinese celebrities, like actor Wang Kai, to represent the brands.
After a year on the job, Martin sees the first signs of improvement on the horizon, especially for Peugeot. Even so, he said PSA will probably miss a target to sell 1 million vehicles in China and Southeast Asia in 2018.
Turning the situation around could take two years, according to Michael Dean, a Bloomberg Intelligence analyst.
PSA has been present in China for three decades. Long-time partner Dongfeng helped rescue the French automaker in 2014 by acquiring a 14 percent stake, and owns half a joint venture with PSA that develops, produces and sells cars in China. But PSA is losing share to foreign rivals such as VW and Toyota Motor as well as Chinese budget brands.
The 120-year-old French carmaker has fallen into the same trap that once plagued its European business: targeting budget-minded consumers with compact cars that compete on price. That results in thin profit margins and customers that move on as soon as they can afford something better.
To reverse that dynamic, PSA plans to introduce 18 new models by 2020 in the country -- including the DS7 Crossback. The partners are also developing a platform to produce electric and hybrid vehicles starting in 2019. The company currently has no plan to introduce Opel vehicles in China, Martin said.
''We aren't a Chinese brand and we won't be fighting to sell 80,000-yuan cars," said Jean-Philippe Imparato, the global head of the Peugeot brand, echoing Tavares' credo that profitability trumps volumes. "If we can make money by selling 25,000 cars a month, that's what we'll be doing, full stop. And the rest will come later."
So far, Chinese consumers haven't warmed to the high-end DS cars PSA is producing with Chongqing China Changan Automobile, another partner. PSA sold just 3,131 DS vehicles in the first six months.
The automaker will produce a one-ton pickup with Changan in three years, after strengthening ties to its Chinese counterpart with a 250 million-euro investment to develop new products. The DS brand should be profitable soon in China, according to its chief, Yves Bonnefont, partly because it will now share plants with Changan.
"Even if they do bring in more models, a much more aggressive marketing campaign is needed," said Cavender at China Market Research. "The new models are going to help them right away, but it's also a multi-year process of supporting the brands and investing in their presence here."