Peugeot opens third auto plant in China as European sales slide

Bloomberg News (Shanghai) - PSA Peugeot Citroen (UG), the unprofitable French automaker, opens a third assembly plant in China today, expanding in the world's largest vehicle market even as a slump in European demand prompts it to cut jobs at home.

Chief Executive Officer Philippe Varin is scheduled to attend the opening ceremony in Wuhan in China's central Hubei province today. The factory, opened with Dongfeng Motor Corp., will produce the Citroen C-Elysee and Peugeot 301 sedans and increase the company's annual capacity by two-thirds to 750,000 units by the end of 2015.

Peugeot's expansion in China contrasts with its job cuts in France. The Paris-based automaker, which produced 40 percent of its vehicles at home last year, reported a 576 million-euro ($750 million) operating loss last year and has started implementing a restructuring plan that includes closing a factory on the outskirts of the capital and eliminating 11,200 positions in the country.

"China is probably the only way for PSA to get out of their difficulties in Europe," said Klaus Paur, global head of automotive at industry researcher Ipsos in Shanghai. Peugeot's reliance on Europe has "amplified" their problems, he said.

European car sales fell to a 20-year low in May as record joblessness caused by a recession in the euro area reduced demand at Peugeot, Renault SA, Fiat SpA (F) and General Motors Co. (GM) Political leaders are seeking ways to revive a shrinking economy weighed down by the sovereign-debt crisis, with unemployment in the 17 countries using the euro reaching a record 12.2 percent in April.

China Sales

Peugeot's sales in China surged 32 percent to 232,960 units in the first five months of the year, outpacing the 15 percent gain in industry passenger-vehicle deliveries, according to data from the company and the China Association of Automobile Manufacturers.

The automaker increased its sales target in China to 557,000 units this year from 500,000 units on improved demand, according to Gregoire Olivier, chief executive of Asian operations, in an April interview. China may overtake France as its biggest market by 2015, he said in February.

Peugeot sells three SUVs -- the locally produced Peugeot 3008, the imported Citroen C4 Aircross and Peugeot 4008 -- along with sedans and hatchbacks in China. The C2 and Peugeot 207, their lowest-priced models, start from 71,800 yuan ($11,700), according to the company's website.

The French automaker will produce cars for its premium DS line in Shenzhen with Changan Automobile Group.

Foreign Expansion

By making cars in China, Peugeot avoids tariffs that add at least 25 percent to costs of imported cars. Last month, GM started work on a new Cadillac factory in Shanghai while Ford Motor Co. opened an assembly plant in southern China that more than doubled its production capacity.

French auto brands increased their market share of passenger vehicles in China to 3.2 percent in the January-to-May period from 2.8 percent a year earlier, according to the auto association. They trailed American, Japanese, Germany and Korean marques among foreign automakers.