Manufacturing News

Changan, PSA form JV

China's second largest automaker Changan Automobile Group inked a letter of intent with PSA Peugeot Citroen to set up a 50-50 joint venture to manufacture cars in China, a move analysts thought was unlikely to have a significant impact on the market.

"This joint venture will produce environmentally friendly light commercial vehicles and passenger cars. And the new joint venture will complement both parties' existing joint ventures in China, without direct competition," PSA said in a statement.

Changan assembles passenger vehicles for Ford Motor and has a mini-car joint venture with Suzuki Motor. PSA has been jointly producing cars in two plants with Dongfeng Motor Group, turning out small vehicles like the Peugeot 207, Peugeot 307, Citroen C2 and variants of other models specifically adapted for the Chinesemarket.

Zeng Zhiling, a senior market analyst with Global Insight's global automotive group, believes Changan wants to reuse a Shenzhen plant of its subsidiary Harbin Hafei Au-tomobile Industry Group. The plant was opened in 2004, but was suspended three years later due to bleak achievements.

"However, commercial vehicles are a niche market, and PSA has localized most of its salable passenger vehicles in Dongfeng. I don't see how the deal will bring a huge supplement to Changan's current product portfolio," Zeng told the Global Times.

Changan has vowed to sell 5 million vehicles worldwide by 2020.

Changan has established an advantage in producing low- and medium-end vehicles, particularly small cars, thanks to its own R&D capabilities, its cooperation with Ford and Suzuki and its purchase last year of three small vehicle makers - Jiangxi Changhe Automobile, Jiangxi Changhe Suzuki and Harbin Hafei Automobile Industry Group.

However, its offerings in the luxury segment need to be advanced. Independent auto analyst Zhong Shi said PSA's high-end commercial vehicles would be more than enough to help Changan sell 5 million units.

Analysts said the deal indicated that PSA is attaching more importance to the world's largest auto market, and is looking for more channels and partners to fulfill its ambitions.

China has become the money-losing automaker's second-largest market in the world. PSA lost 1.16 billion euros ($1.49 billion) worldwide last year and received a 3 billion euro ($3.85 billion) loan from the French government to help it through the economic downturn.

It is pursuing expansion in markets outside Europe, particularly in emerging markets like China.

It is planning a third factory with Dongfeng and expects to sell 2 million vehicles in China in 2020. Last year, it sold 272,000 units in the Chinese market.

But PSA has struggled to perform in the last 25 years, and coordinating its projects with Changan and Dongfeng has seemed to baffle the automaker, Zeng said.

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