Peugeot, Changan agree on Chinese production venture

PSA Peugeot Citroen, Europe's second- largest carmaker, agreed to set up a venture with China Changan Automotive Group Co. to tap rising demand for vehicles in the world's biggest auto market.

The 50-50 venture to manufacture cars and light commercial vehicles won't compete directly with other partnerships, the companies said in a statement today. Peugeot already assembles cars with Dongfeng Motor Group Co., while Changan shares plants with Ford Motor Co.

"This is a small step in the right direction for Peugeot as it seeks to become a more international business," said Mike Tyndall, an automotive specialist with Nomura in London. "China is becoming a very competitive market and Peugeot has been losing share."

Details of the plan are being negotiated, the companies said. The partnership may use a factory in Shenzhen, owned by Harbin Hafei Automobile Industry Group Co., the carmaker acquired by Changan last year, a person familiar with the matter said yesterday.

Production capacity at the plant in Shenzhen, southeastern China, was increased by one-third to 100,000 units last year, according to Nomura data. Hafei commercial trucks are produced at another facility in the northeastern city of Harbin, with annual capacity of 350,000.

GM, Volkswagen

Peugeot's Chinese operations are dwarfed by market leaders General Motors Co. and Volkswagen, which had 16.3 percent and 13.5 percent of China's passenger-car market respectively last year, according the China Association of Automobile Manufacturers.

Changan aims to sell more than 2.6 million vehicles by 2012. SAIC Motor Corp., China's biggest domestic automaker, sold 2.71 million vehicles last year.

Peugeot is adding to its partnership with Dongfeng as foreign brands expand in China, which surpassed the U.S. in vehicle sales for the first time last year. Volkswagen AG said April 26 it will increase its 4 billion-euro ($5.1 billion) investment program in China by 1.6 billion euros.

The Peugeot-Dongfeng partnership produces the 308, 408 and Citroen C5 cars and is planning a third factory as their two plants in Wuhan, eastern China, approach capacity limits, Philippe Varin, the Paris-based carmaker's chief executive officer, said yesterday.