The French carmaker is putting its plans to enter the countrys 25-lakh-unit car market back on track under its Back in the Race growth strategy. A PSA team based out of Pune has been studying different options over the last few months, and industry sources said the company is likely to go for a contract manufacturing tie-up with its global partner General Motors (GM) to reduce upfront investments. While its own Gujarat project may not be resumed, the alternative being considered is setting up a new plant in Tamil Nadu or Maharashtra in partnership with Dongfeng, a Chinese carmaker that, along with the French government, invested over 1 billion euros in PSA in April this year.
PSA is exploring ways to better exploit the potential of the Indian market for the group. At this stage, there is no question of resuming the project (Gujarat plant) in India, said Pierre-Olivier Salmon, an official with PSAs France-based communications team.
PSA will be the 10th and the last of the major global automotive groups to enter India, which according to IHS Automotive is expected to be the third-largest market (from seventh today) behind China and the US by 2016 on the back of strong economic growth and improving infrastructure. While nearly all carmakers, including luxury players like BMW and Mercedes-Benz, today run their own plants in India to achieve high economies of scale and thus price their models competitively, only Mitsubishi and Isuzu have chosen the contract manufacturing route. Both use the Hindustan Motors facility near Chennai to assemble their vehicles from imported parts.
Meanwhile, in a management restructuring at the headquarters, PSA this month appointed ex-Nissan executive Emmanuel Delay as the operational director for the newly created India-Pacific zone reporting directly to new chairman Carlos Tavares. Tavares, Renaults ex-COO, is believed to be very bullish on India because of his familiarity with the domestic market he had been involved with the Duster project and has worked with Renaults India team closely.
In a presentation titled Operational framework for a turnaround published on April 14, PSA also mentions that one of its business objectives is to trigger development in next BRIC markets with a reinforced regional sourcing. Incidentally, the group is already operational in Brazil, Russia and China.
There is a renewed focus on South Asia and Asean markets. India and other key South Asia markets continue to remain strategically important for the group, confirmed Shashikant Vaidyanathan, head of PSAs Pune-based India office.
PSA, which entered into a global partnership with GM in 2012 aimed at cutting costs through platform and plant sharing, is likely to use GM Indias plant at Talegaon (near Pune) GM India also has a second plant at Halol, Gujarat. The Talegaon plant, which makes the Sail, Sail U-VA and Beat models, has an annual production capacity of 1.7 lakh units but is only utilising about 25% of it because of low demand.
When asked about a tie-up with PSA, P Balendran, vice-president, GM India, said, We are not aware of any such development and it is inappropriate for us to speculate on the relationship going forward.
Gaurav Vangaal, automotive analyst for light vehicle forecasting at his, said, In the long term, it is difficult for any global manufacturer to ignore the Indian market because of its strong potential. Brand creation and penetration is a time-consuming factor in India. If it is true that PSA will look at contract manufacturing, it can be the right strategy before getting into full manufacturing because of investment risks. The only concern is currency fluctuation, which may increase the cost of CKD production, and impact the whole business plan.
New road map
* This month PSA appointed former Nissan executive Emmanuel Delay operational director for India-Pacific zone
* Likely to go for a contract manufacturing tie-up with its global partner GM to reduce upfront investments
* Considers setting up a new plant in Maharashtra or TN in partnership with Chinas Dongfeng