New Delhi: French car maker Groupe PSA and India’s CK Birla Group will form two joint ventures to build and sell the Paris-based company’s cars in India. PSA has three brands–Peugeot, Citroen and premium brand DS automobiles. The partners have not decided the brand they plan to sell in India.
In the first joint venture, which is to build cars, PSA will be a majority stakeholder, and in the second one, which is about making engines, powertrain etc, both the companies will hold 50% each. The manufacturing sites for both vehicle assembly and powertrains will be based in the state of Tamil Nadu. PSA will invest €100 million in India in the first phase. The companies will start selling cars from 2020.
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Peugeot, which was once considered as a partner for Maruti Udyog Ltd before Suzuki took that role, entered India in 1994 through a partnership with Premier Automobiles Ltd. Their first product. Peugeot 309, sold around 10,000 units in the first year. But, labour unrest and mounting losses forced Peugeot to exit the joint venture and also India by 1997.
In another attempt in 2011, Groupe PSA even laid the foundation for a factory in Gujarat’s Sanand, aimed at producing over 170,000 units annually. But even this plan was later shelved due to their financial woes globally.
In an interview, Groupe PSA’s celebrated chief executive Carlos Tavares and C.K. Birla, chairman of the Indian firm, shared plans for the local market. Tavares was also Carlos Ghosn’s deputy and played a significant role at Renault-Nissan Alliance. Edited excerpts:
Since you are a late entrant to the Indian market, how do you see your journey 2020 onwards?
Tavares: Indeed three years ago the company was almost bust but thanks to the strong plan we were able to rebound and in the first half of 2016, in the worldwide automotive industry in terms of profitability, the PSA Group has been number 4, which is a reasonable ranking given the competition we are facing. It demonstrates the strong rebound of the PSA group, which is now a healthy company with a strong strategic plan.
We are indeed delighted to have today the pleasure of signing the partnership with the CK Birla Group to come back in a humble way to the Indian market. You mentioned and rightly so, there have been several attempts which have so far been unsuccessful but this one is very much based on credibility, its based on long-term vision. We step in, in order to not to have to step out later on and we will make sure we move step by step and learn from our previous mistakes and learn from what we have seen elsewhere, may be some hurdles that our competitors are facing.
The Indian car market is dominated by the Japanese and Koreans. What makes you feel you will be able to make a dent in this market?
Tavares: I know that India concentrates very much on fuel efficiency. I think this is something that Indian consumer is very demanding on, fuel efficiency means slow emissions. You know we are the leaders of European industry in terms of CO2 emissions, we are the best and we beat the Germans, we beat the Japanese, we beat the Americans, we beat all the other car companies so if we bring the best of our technology to a market where fuel efficiency is the one of the core expectations of the consumers, with the support of a great partner who is already quite an expert in terms of powertrain, I think we have here a combination of positive factors that should give us some kind of edge in the Indian market but I won’t make it low key.
We want to take our time, this is a long-term relationship and we will go step by step and the important thing is that we have a scalable business model so that we keep things in the black and that we don’t go in the red.
Indian market has started to graduate to cars, which offer luxury, and are premium and then there is a huge pool of customers who are just getting into buying cars. So of these two segments, which one will be your priority?
Tavares: It’s a great point. So far it is still under consideration. It is true that by the PSA group we have three brands, two generous brands and one premium brand.
So, we have the opportunity to evaluate different positioning in the Indian market, the low-end, core or premium, it is up to us as we have in the three scenarios, we have the products and the technology… We are still considering the pros and cons of different brands and different positioning and what I can tell you today is we will come with only one brand as a starter…
Will your cars be sold under your channel or will it be a joint venture brand, which will spread network across?
Tavares: Well, the network strategy is too open, completely open to conventional distribution models or even with the distribution models created with our partner.
C.K. Birla: Well it will be a completely different strategy as far as the distribution is concerned and in due course of time we will decide what will be the distribution strategy and the model.
You have been one of the pioneers of the Indian automotive industry, nobody can forget the Ambassador as long as one lives. But, AVTEC (auto parts company) has been doing pretty well, Mitsubishi and Hindustan Motors haven’t really done so well, so what was the thought behind getting into joint venture?
Birla: We are in for a long-term relationship. PSA has a very long history and also going forward, the way they plan, it’s a very strong brand and I am very sure that with them we will be able to make a big success in India.
So, for us, it’s a long-term relationship, it’s not that by tomorrow we will expect results. It’s going to take time. I am quite sure that once it establishes the brand will be very successful in India and that’s my hope and strategy that we will make it happen.
The investment figure which has been talked about is €100 million on behalf of PSA group, that goes into both the joint ventures. Is it?
Birla: It’s the total investment to start with, it’s gradual and will ramp up over the years and as we said that it will be a 50-50 investment in the powertrain JV and in the vehicle JV, it will be 80% PSA and 20% will be our investment.
So, what will be your total investment in JV?
Birla: It depends as we ramp up the investment, investments will go up. To start with one third of investment will be ours and two third will be of PSA.
When you look at Indian market and your previous company, Renault, seems to have done fairly well with one product called Kwid. Do you believe in that strategy?
Tavares: Well there is something that we believe in is that the greatness of a company is not measured through volumes so we want to make PSA Group a great company not through volume measurement and we believe that measuring volume is a very poor KPI to evaluate the greatness of a car company but of course we constitute that the volume growth is consequence of a well done job… So we will take our time and make our decision in a fruitful way.
India is no more a market where you bring your global models and dump them here and people will buy, the taste and requirements of consumers are very different. So, will you be looking at say a made in India model?
Tavares: Two different things to answer your question. We believe that in the current directions that we see the world what is going to happen is that the products that we will sell locally will be sold locally, it is obvious for India. It is not obvious for other parts of the world. but, I believe that other parts of the world are moving in the same direction of India, which means you produce locally what you sell locally.
Now that does not prevent us from addressing opportunities for instance selling powertrains to third party in India, which we are eager to consider for our business health of our operation.
The other point of talking about the products is that we need to blend two different things, one thing is understanding the specific Indian customer expectations for instance in terms of air conditioning is one, in terms of roominess is other one. So, we need to understand that and build our products around those expectations but at the same time, we want to bring to them the best of our technology and other features that they consider as being state of the art technology in the automotive industry and this is why it is better for us to start from our core model strategy, which is a global range of products that we are going to use on a worldwide basis so that we bring the state of the art technology and using local partners we will adapt those products to the specifics of Indian consumers.
So we are going to blend two dimensions, core strategies to bring the best of technologies of PSA and at the same time, adapt the products locally to make sure we bring most of the technologies to adapt to the basics of market expectations