Bernd Schantz of PSA Peugeot Citroën: Russia’s car market will continue booming

Modern Russia recently spoke with the Senior Vice President of PSA Peugeot Citroën in charge of Russia, Ukraine and CIS, Bernd Schantz, on the future of Russia’s car market and the company’s strategy there.   

Car sales in Russia increased by 56 percent in the first six months of 2011 compared with 2010, while Peugeot and Citroen sales increased respectively by 59 percent and 91 percent over the same period. How do you explain this successful trend?

The Russian market continued booming after the start of post-crisis growth in 2010. 

• During the first half of 2011, the market grew at an unprecedented pace, exceeding 1.2 million cars. 
• Based on the combined sales results of the two brands, Peugeot and Citroen sales grew faster than the overall market, with 70 percent in the first half quarter of 2011, while our group succeeded in increasing its own market share during this period. 
  

Thanks to their local assembly sites, the Citroën 308 and C4 models have contributed to the success of the brands particularly, whilst the LCV strategy launched in 2010 continues to pay off by doubling sales each year. Meanwhile, the PCMA Rus Kaluga industrial site development goes on, with the assembly of two new models (the new Citroën C4 in June and the redesigned Peugeot in July) and the full-cycle production beginning in mid-2012.  

Do you think the government’s objective to turn Russia into the leading European car market by 2020 is realistic, given the current economic climate and the fact that the cash-for-clunker program will end next year?  

Yes, we see this objective as realistic for two reasons:

• First, we are seeing very strong and consistent work by the Russian government aimed at building an efficient and competitive local manufacturing industry. While their efforts first focused on creating favorable conditions for assembly-based manufacturing of passenger cars, they have now expanded to support the development of the local automotive parts suppliers. Of course, the scrappage program has considerably contributed to the post-crisis recovery of the Russian car market. However, we don’t believe that the cessation of this program would affect current positive trends in the local market. 
• Second, the Russian market is growing based on the increasing demand and the purchasing power of consumers. Car density in Russia (226 cars per 1,000 inhabitants in 2008) is still much lower than in the EU (470).  

We are very optimistic about the recent figures announced by the Ministry of Industry and Trade in July 2011, according to which the Russian market may reach 2.7 million cars in 2011, becoming the biggest European market by 2014, and further reaching 4 million units by 2020. Of course, a lack of stability on global financial markets should be taken into account, so we need to be cautious with forecasts.   

Last year, PSA Peugeot Citroen started to produce cars locally from a production site in Kaluga, as part of a joint venture with Mitsubishi. Can you briefly explain why you decided to manufacture in Russia instead of assembling cars produced abroad, and why Kaluga?

Is the environment for doing business particularly good there, and if so, why? We are very proud to be part of the local car manufacturing industry in Russia and as our project in Kaluga develops, we continue to see the proof that our group management and shareholders made the right decision at the right time. Our reasons to invest in local production in Russia can be divided into two categories: strategic and financial. 

• Since PSA Peugeot Citroën has been pursuing a strategy of becoming a truly global group in recent years, our strategic goal was to establish a strong presence in this rapidly emerging market with such enormous economic and human potential. Also, this decision envisaged launching some specific models which would be in demand - and, we believe, welcomed - by the local market. These are our C-segment sedans which we plan to start producing in 2012.
• Obviously, to be able to benefit from the opportunities in Russia, along with marketing imported cars, you need to have established a local production operation. These were the rules set by the Russian government and we should admit they were fair - they helped our project to become economically viable. In the current market conditions and based on the industrial assembly regulations, under which our Kaluga plant operates, the local production of the top-selling cars is really more attractive than importing.

The group considered several Russian regions when deciding where to locate the manufacturing plant. Our main criteria were good location, already existing or rapidly developing infrastructure and overall favorable business environment. The region of Kaluga has perfectly met all these requirements.  

How is the plant doing a year after its launch? Is it running at full speed and capacity, and what are the forecasts for the months ahead? What is the economic impact for the whole Kaluga region? 

The official inauguration of the plant in April 2010 was an important milestone of the investment project originally launched by PSA Peugeot Citroën in 2007, and transformed into practical implementation with the creation of PCMA Rus JV with our partner MMC.  The total volume of production since the beginning of operations is 50,000 cars, of which 31,000 were Peugeot and 13,000 Citroën. Models produced include:

• Peugeot 308
• Citroën C4
• Citroën C-Crosser 
• Peugeot 4007
• Mitsubishi Outlander XL  

Though the plant is not currently running at full capacity, it has three shifts working each day and we predict that once at full capacity in 2013-14, it will produce 125,000 cars per year. Combining Russian, French and Japanese cultures there has helped develop a unique international environment onsite, providing high quality business standards and unity amongst the employees.  

The investment project of PCMA Rus in Kaluga is being implemented within the framework of the “industrial assembly” regime while the government of the Kaluga region is providing a structured and comprehensive support to the project, along with the Kaluga Region Development Corporation, Agency for Regional Development and the ROSVA Industrial Park organization.  

The project has had a significant socio-economic impact for the Kaluga region, most evident in the creation of more than 700 new jobs (a number expected to rise to 3,000 by 2013) while investing in local professional education and training infrastructure.   

Competition, notably from other foreign carmakers, is tough in Russia. How do you perceive the development of Renault-Nissan-Avtovaz, and how does the strategy of PSA Peugeot Citroën compare to it? What is your competitive advantage? Is partnering with an Asian competitor a recipe for success?  

We see the creation and development of the Renault-Nissan-Avtovaz alliance as a logical trend for the national and regional markets. Obviously, the merging of such different business structures, engineering traditions, marketing strategies and working cultures always has its advantages and difficulties. I would not compare the PSA strategy to that alliance though.  In Russia, we opted to partner with one of the global automotive leaders, Mitsubishi Motors Company, as we have already done in the other projects at the global level (in particular in the R&D area).