PSA Looks to ‘Right the Ship’ in China after Massive Losses

In 2014, China became the biggest market for French car brand PSA Group, maker of Peugeot, Opel, and Vauxhall, among others. That year, PSA sold a whopping 734,000 vehicles in total, selling more cars there than in its home country of France. Consequently, PSA's partnership with local Dongfeng Motor Group was yielding record manufacturing numbers, and the upscale brand DS had just been spun off from Citroen, with the aim of enticing well-to-do Chinese buyers with a French luxury car brand.

Since then, PSA's sales in the region have fallen significantly. In 2017. The number fell to almost half, at 387,000. This was highly unusual, considering the Chinese passenger-car market rose by 25 percent from 2014 to 2017.

Some of the reasons cited for the massive drop include: the assembly plants running well below capacity, key executives leaving the company, a lack of SUVs which the market has been favoring a lot as of late, and obsolete holdover models that are no longer current in Europe.

CEO Carlos Tavares offered PSA shareholders a blunt assessment last year. "Our performance in China does not meet expectations," he said at the annual general meeting. "We've lost market share. We've lost profitability. Our speed of adaptation is insufficient." Tavares has vowed to strengthen PSA's retail network and cut manufacturing costs.

"Everything regarding their sales volume is because their products are not well adapted for Chinese customers," said Chang Shu, a partner in the Shanghai office of the consulting company Roland Berger.

Unfortunately for PSA, China's automotive market is predicted to grow at a much less rapid pace, as domestic automakers take a larger share of the market from their international competitors. Facing this prospect, 2018 is a critical year for the French company.

"This is their make-or-break year," said Namrita Chow, principal analyst for the Chinese market at IHS Markit. "They've got to make it work. PSA needs the volume in China if they want to maintain a global presence."

To turn the tide, PSA has assigned Carlos Gomes, the company's former executive vice president for Latin America, to take over its operations in China and Southeast Asia. Gomes started his new job on February 1, replacing Denis Martin, who was the region head for 18 months. Gomes said that he was fully aware of the challenges that lay ahead, and is planning a long-term fix that will last two to three years to get the brand hitting and exceeding its targets again.