Caixin
Feb 28, 2019 07:25 PM
BUSINESS & TECH

Automaker PSA Seeks China Turnaround After Sales Slump in 2018

Last year, China became the slowest-growing region where PSA operates. Photo: VCG
Last year, China became the slowest-growing region where PSA operates. Photo: VCG

PSA Group Inc. forecast that its sales in the world’s largest vehicle market will shrink by 3% this year following a 34.2% plunge in 2018, according to its annual results released Tuesday.

The results illustrate that China has gone from a sales driver to a sales drag for both foreign and domestic automakers as the country’s auto market shrank for the first time in nearly three decades in 2018.

In the last fiscal year, which ended Dec. 31, the French automaker sold 263,000 vehicles across China, one-third of the 736,000 sold there in 2015, according to the annual results. That made China the slowest-growing region where PSA operates.

The sales plunge dragged on PSA’s companywide revenue last year, which rose 18.9% to 74.02 billion euros ($83.74 billion) thanks to strong sales growth in Europe, the results said.

The company reported its consolidated profit from continuing operations rose 47.4% to 2.83 billion euros, but did not break out figures for the Chinese market, only saying that it aimed to return to profitability in the region by 2021.

A total of 28.1 million automobiles — including both commercial and passenger vehicles — were sold in China last year, down 2.8%, the first decline since the 1990s, according to the China Association of Automobile Manufacturers (CAAM), a government-backed industry group.

The association expects this year’s sales to be roughly the same as 2018, but PSA is less optimistic, forecasting that sales in China will fall for the fifth straight year in 2019.

The contraction in China’s car market comes as the country grapples with a slowing domestic economy and an ongoing trade war with the U.S., which has blunted consumers’ desire to spend on big-ticket items like cars.

The China Passenger Car Association (CPCA), another government-backed association, predicted passenger car sales will fall around 1% this year. Domestic automakers such as Great Wall Motor Co. Ltd. and Chang’an Motor Corp., and their foreign competitors including General Motors Co. and Ford Motor Co., have all seen their sales fall in China.

One of the few automakers to buck the trend was Germany’s Volkswagen AG, which managed a sales uptick of 0.5% on the Chinese mainland and in Hong Kong last year, maintaining its position as China’s auto sales champion.

Volkswagen announced on Tuesday that it is set to spin off its Jetta brand (link in Chinese), which is targeted at first-time car buyers.

For its part, PSA wants to turn its China business around. As one of the first foreign auto companies to get into China, the company has struggled in recent years to fend off fierce competition from German and Japanese rivals as well as rising domestic brands.

PSA Group Chairman Carlos Tavares said in a company statement that the board is not satisfied with PSA’s performance in China, and the company is trying to transform its business models there.

Tavares said the Chinese market has changed a lot in just a few years, and PSA needs to come up with a new way to manage its operations there, but did not elaborate.

PSA has two partners in China — Dongfeng Motor Group Co. Ltd. and Chang’an Automobile Group — which have helped the French company set up local joint ventures to manufacture its Peugeot and Citroen cars respectively, as well as upscale DS models.

The market slump in 2018 has also prompted China’s top economic planner, the National Development and Reform Commission, to signal in January that Beijing will roll out measures to encourage consumption of large goods including cars. The official didn’t specify details, but China has succeeded in the past at propping up demand with fiscal incentives such as purchase tax cuts and one-off subsidies.

China surpassed the U.S. to become the world’s largest vehicle market in 2009 after car sales surged 46% from the previous year thanks to lower purchase taxes and subsidies for replacing old vehicles.

“However, the long-term benefits of such policies this time are questionable,” said Qiu Kaijun, who runs an independent automobile industry blog. “Fiscally, this is also challenging for the Chinese government.”

Contact Reporter Isabelle Li (liyi@caixin.com)

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