Chang’an PSA: Will the JV be positive?

　　Chongqing Chang’an Automobile Company and French carmaker PSA Peugeot officially disclosed that they have signed letter of intent to set up a 50-50 vehicle manufacturing venture yesterday, which will produce light commercial vehicles and passenger cars. However, two parties haven’t given any specific JV details, including the new facility site, production capacity planning, new vehicle models, production schedule and the specific information of JV brands. The coverage of the matter has focused on the exclusive interview with Peugeot's China CEO, Claude Vajsman and interviews with other insiders on 5th June. Without any specific information, the JV deal of two companies and its outlook have been widely speculated.

　　Since letter of intent goes ahead beyond sector’s expectation, it’s predicted that many disputable problems between Chang’an and PSA are not solved or the solution is not ready for ascertain temporarily. It’s extremely important for both parties to confirm their joint venture deal. Chang'an currently has a three-way tie up with Ford, Mazda and Suzuki Motor Corp, but lacks a dominating European automaker partner. However, if Chang’an would like to ascend into the top four domestic automakers, it has to spur the development of commercial vehicles and passenger cars in domestic market, which is a main motivation for Chang’an to start to reorganize its assets for many times, seek for overseas acquisition, and join hands with a new joint venture partner in 2009.

　　As for PSA, Dongfeng Peugeot Citroen motors can’t make the European automaker satisfied. Compared with some rivals which have a foot in two camps, such as Volkswagen, Toyota, and Honda, two brands of PSA and Dongfeng motors didn’t achieve a better performance in the market of passenger cars. Even in 2009 when the vehicle market was extremely blistering hot, the sales of PSA vehicles totaled only 260,000 units, far less than those of other joint venture companies, which entered into China earlier. It’s urgent for PSA to increase the production capacity of Dongfeng automobiles. However, seeking for a more appropriate joint venture partner seems to be a more realistic choice in middle and long terms so that PSA could grab more market share in China.

　　In this case, JV deal would be a better choice for either Chang’an or PSA. The problem lies in the operation of future vehicle brands and the injection of new vehicle models. As the biggest automaker of light commercial vehicles in Europe, both parties are expected to take the lead in launching the cooperation of light commercial vehicles and bringing in new vehicle models. However, there are still many changes and uncertainties in terms of passenger cars.

　　It’s not difficult to be aware of some new expectations from both parties’ chief executives in the exclusive interview with Peugeot's China CEO, Claude Vajsman. Those expectations are reflected in independent brands. Both parties hope to foster an independent brand in joint venture companies. It means Chang’an will launch some independent vehicle models possibly in 2 years, besides manufacturing Peugeot and Citroen. As Chang’an is a low end brand in the market of passenger cars, the price of the independent brand is predicted to go between of Peugeot Citroen and Chang’an.

　　Some misleading information was conveyed from the earlier coverage of vehicle models. Quite a few Medias have reported that the cooperation between Chang’an and PSA includes the technology of Chang’an and brand names of PSA. In the interview with Peugeot's China CEO, Claude Vajsman, he didn’t mention that the company will adopt the technology of Chang’an, but focus on how to maintain cooperation with Dongfeng automobiles after the joint venture, and establish an integrated system for automobile parts purchasing so as to seek for lower manufacturing cost. He also noted that both parties would remain the difference and independence of their products in a common platform.

　　PSA is predicted to inject many complete vehicles’ platforms and different vehicle models into the joint venture company including small and compact vehicles, compact SUV, and even middle level vehicle products. However, it’s certain that those products will be different from vehicle models of Peugeot Citroen which are about to be produced and launched by Dongfeng automobiles. Thus, it’s not hard to understand why PSA made great efforts to expand the scale and amount of staff of China’s product center in 2009. As for the product center, it could not only carry out missions of localized transforming, but also the design of independent brands for Chang’an PSA.

　　It’s predicted that PSA will inject new compact SUV and MPV to the market in China, such as Citroen 3008. Some main production platforms for passenger cars belonging to PSA will be launched into Chang’an in the long run, but the vehicle models will be different from overseas versions. Taking Localized transforming as a priority, PSA already had mature cases in this aspect, such as the evolution of C-QUARTER from the earlier C4 and C-triumph. As for PSA, the main purpose for its joining hands with Chang’an lies in how to launch some revised vehicle models suitable for the market in China, and putting them into production in Chang’an PSA so as to grab more market share of Peugeot Citroen in China.

　　As for the JV deal, Chang’an focuses on the vehicle sales and scale in the short run. It’s not important whether the vehicle model which will be put into production is PSA brand or an independent brand. Both parties will argue more and more about injected vehicle models and brand ownership, especially establishing an independent brand. Chang’an would like to take this chance to establish an independent brand with a better premium price in the market. However, it means not much for PSA. Thus, it won’t inject more vehicle models and energies to develop independent brands unless PSA, like Renault, would like to launch a PSA ‘LOGAN’ into European market for low end vehicles.

　　No matter in terms of main vehicle models or its products, Chang’an motors focus on joint venture models, and its independent brand focuses on low-end market for vehicles. Therefore, the premium price is quite limited, and the competitiveness of majority of products lies in cost performance and low prices. The JV deal with PSA means that Chang’an will own a potential technology platform of complete vehicles. If both parties have agreed on transfer and export of theology, it will be helpful for Chang’an to launch more independent brands in the future. (Translator: Qinghua Serena)

　　See original Chinese report please click: http://georgeren123.blog.sohu.com/150550807.html