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The death of Chang’an PSA

CHONGQING – Chang’an PSA will soon be history.

Just a little over eight years in existence as a joint venture between Chang’an Automobile and Groupe PSA, and less than a decade after the letter of intent was signed in May 2010 to form the JV, both partners are ready to say goodbye to each other and the JV.

A spokesperson with Groupe PSA confirmed on November 28 that the French automaker was planning to sell its 50 percent stake in the JV, its second in China after Dongfeng-Peugeot-Citroën Automobile Co., Ltd. (DPCA). Wang Chao, director of corporate communications at Groupe PSA China and Southeast Asia, confirmed to the media that both parent companies plan to sell their stakes in the JV to a third-party.

Timeline of the birth and death of Chang’an-PSA

May 4, 2010: Chang’an Automobile Group and Groupe PSA sign letter of intent to form JV;
July 9, 2010: Chang’an Automobile Group signs contract with Groupe PSA in Paris to form Chang’an PSA with total investment of ¥8.4 billion and annual output capacity of 200,000 vehicles and engines initially focused on the DS brand;
July 12, 2011: Chang’an PSA receives approval from National Development and Reform Commission (NDRC);
December 2012: Chang’an Automobile acquires 50 percent stake in Chang’an PSA from parent company Chang’an Automobile Group;
February 22, 2013: Chang’an PSA announces appointment of Gilles Boussac as new president, succeeding Eric Apode, who had been president since November 2011;
September 28, 2013: Chang’an PSA inaugurates new production facility in Shenzhen, Guangdong Province to produce the DS5;
March 1, 2016: Olivier Mornet appointed CEO of Chang’an PSA, succeeding Gilles Boussac;
June 7, 2017: Chang’an Automobile and Groupe PSA sign in-depth strategic cooperation agreement to further deepen cooperation;
September 27, 2017: The two partners sign agreement to develop a new vehicle platform for Chang’an dedicated to LCV s and to develop a new one-ton pickup for both partners;
November 29, 2019: Both partners confirm plans to sell their respective 50 percent stakes in the JV to third parties, DS production to remain at Shenzhen production facility.

A day later on November 29, a statement was posted on the Chongqing Assets & Equity Exchange confirming that Chang’an Automobile was seeking to offload its 50 percent stake for a minimum of ¥1.63 billion, valid for a period of 25 days until December 26.

The moves signal the days for one of the most controversial JVs are about to be numbered, and the demise of yet another failed JV from Groupe PSA. It was 21 years ago that Peugeot sold off its take in the failed Guangzhou-Peugeot JV to Honda for a symbolic $1, which resulted in the formation of the GAC-Honda JV.

It also marks another pullout by a foreign automaker from a Chinese-foreign vehicle JV following Suzuki’s decision last year to exit its Chang’an-Suzuki JV. In two years, Chang’an has lost two JV partners, with Ford and Mazda as the lone remaining foreign partners for the Chinese automaker.

Wang confirmed to the media that the DS brand will continue to be produced at Chang’an PSA’s production facility in Shenzhen, Guangdong Province following whoever takes over the JV and that he hoped existing employees at the JV would continue to serve the company following the takeover.

Chang’an and Groupe PSA had received approval for their JV in July 2012 following a contract that was signed a year earlier, which aimed to produce passenger vehicles under the premium brand DS and as well as light commercial vehicles.

At the time of approval, the JV had a registered capital of ¥4 billion split equally between the two partners and total investment of ¥8.4 billion. One of the goals during the early stages of the JV was to also launch a dedicated JV brand in addition to the DS brand.

But despite strong performances in 2014 and 2015, with sales reaching about 27,000 units in both years, the DS brand never caught on with Chinese consumers because it never lived up to its premium positioning compared with established premium brands such as Mercedes-Benz, BMW and Audi. Sales fell off a cliff in 2016 and reached less than 6,000 units in 2018. In the first 10 months of this year, DS brand sold only 2,030 units, with October sales reaching just 10 units.

Falling sales have had a huge hit on the profitability of the JV. According to public data available, Chang’an PSA lost ¥870 million in 2018 and about ¥200 million in the first three quarter of 2019, putting cumulative losses at the JV to about ¥2.455 billion.

The statement posted on the Chongqing Assets & Equity Exchange showed that Chang’an PSA currently has 1,017 employees. It had a net loss of more than ¥897.45 million in 2018 on sales revenues of ¥915.13 million. In the first nine months of this year, it had a net loss of ¥209.45 million on sales revenues of ¥2.49 billion. By the end of September, it had total assets of ¥7.2 billion and net assets of ¥1.5 billion.

Chang’an PSA produces the DS3, DS4, DS5 and DS7 sedan and SUV models with annual output capacity of 200,000 vehicles. The sedan models cover the ¥180,000-¥200,000 price range while the SUVs are priced at around ¥250,000. The relative high prices for a relatively unknown brand plus lack of speed in introducing new models to the Chinese market catered to Chinese local consumer tastes doomed the brand and the JV.

Groupe PSA has reiterated in the past that the DS brand does not plan to exit the market and was rumored to launch a new strategic plan for the brand in the coming weeks or months. The brand showcased four electrified models at the Shanghai Auto Show in April and announced at the Chengdu Motor Show in September that it would launch six new models in China by 2024. It could also become an electrified brand past 2025 when 100 percent of its models will have some form of electrification. There was also rumor that it was planning to bring the locally-produce DS9 to the recent Guangzhou Auto Show but it skipped the show entirely.

The latest rumors have it that Baoneng Group, which acquired a 51 percent stake in Qoros Automotive, Chery’s JV with Israel Corp., back in 2017, is in the leading position to take over Chang’an PSA. A Reuters report in fact said on November 29 that a Groupe PSA spokesperson confirmed that Baoneng Group was one of the potential buyers of the 50 percent stake in the JV.

Baoneng currently has plans to set up NEV production bases in Guangzhou, Hangzhou, Kunming, Shaanxi and Guiyang with total planned annual NEV output capacity of 2.3 million units, according to local media reports. Its chairman Yao Zhenhua had previously indicated publicly that automotive revenues would account for more than half of Group revenues by 2027.

Just two years ago in July 2017, Chang’an and Groupe PSA had signed an in-depth strategic cooperation agreement to further deepen their cooperation in the Chang’an PSA JV, through measures such as launching one new DS model per year from 2018 and joint development and manufacturing of products and technologies in the area of NEVs. It was supposed to launch a PHEV and a BEV this year, and set up a DS brand headquarters in Shenzhen, but never got materialized.

The imminent death of Chang’an PSA would mean that the French automaker can now turn its focus on its remaining joint venture DPCA, which is in the midst of its own survival plan. The JV with Dongfeng Motor Corp. sold just over 100,000 vehicles in the first 10 months of 2019, down nearly 55 percent. DPCA had announced a three-stage “Yuan” renaissance plan that is seeking to grow annual sales back to 250,000 vehicles by 2021 and 400,000 vehicles by 2025 while bringing its break-even volume down from 180,000 to 150,000 units by then.

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