PSA to return to India after 20-year absence

PSA Group, the French carmaker, will return to India after a two-decade absence in the latest stage in its push to expand into emerging markets and lower its exposure to Europe.

Europe’s third-largest carmaker by sales on Wednesday announced car and power-train manufacturing deals with CK Birla Group, the New Delhi-based conglomerate, in which it will produce 100,000 cars a year.

Carlos Tavares, the chief executive of PSA, said the move was a “major step” in the company’s “worldwide profitable growth in key automotive markets”. It follows recent efforts to beef up operations in China.

The group is making the strategic move after its reliance on the weak European market brought it to the brink of collapse in 2014.

Since then, and following a government-backed rescue package, PSA has recovered strongly but remains scarred from the experience and determined not to let it happen again.

Mr Tavares told the FT last year that the company almost “paid with its life” for being too focused on Europe. It was important to “expand to protect the company from any one regional crisis”.

The deal in India comes 20 years after PSA’s last attempt to enter the market with Premier Automobiles, the Indian group, ended in failure after three years in 1997.

PSA hopes this time its Indian adventure will provide an engine of growth. Car sales in India are expected to increase from 3m in 2016 to between 8m and 10m in 2025, according to IHS Markit.

Last year PSA announced targets for a 10 per cent increase in revenue by 2018 compared with 2015, and a further 15 per cent rise in sales by 2021. It said this would be helped by plans to start manufacturing cars in India and Southeast Asia.

The strategy includes plans to increase sales in China, where PSA sold more than 600,000 cars in 2016. However, this was 16 per cent lower than the year before due to problems in its product offering.

There are also plans in the next 10 years for a return to the US, which Citroën quit in 1974 and Peugeot exited in 1991.

PSA said on Wednesday it will assemble vehicles in the Indian state of Tamil Nadu by 2020 under an initial €100m joint venture investment with Birla-owned Hindustan Motor Finance Corporation.

A second agreement, a 50:50 joint venture with AVTEC, the Birla-owned transmission components manufacturer, will make and supply power trains.

CK Birla, chairman of the CK Birla Group, said: “I am confident that the coming together of the latest state of the art technology from the PSA Group and the engineering and manufacturing excellence of the CK Birla Group will benefit the automotive sector in India.”

Among the foreign groups in India, Suzuki’s low-cost Maruti brand has a strong presence while France’s Renault has been performing well with its Duster SUV and its smaller Kwid.