On the Retreat

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French auto giant PSA Peugeot Citro?n was supposed to be the third of a triad of auto majors in Sanand, Gujarat, along with Tata Motors and Ford Motor, but Europe’s second-largest carmaker appears to have shelved its plan.

Peugeot’s original plan in 2011 was to set up a`4,000-crore factory at Sanand, with the first car rolling out in mid-2014. The Gujarat government initially reserved 300 acres land at concessional rate for the plant at an industrial estate of Gujarat Industrial Development Corporation (GIDC), and another 200 acres for expansion. But Peugeot has not made any payment for the land.

A visit to the Sanand site reveals that most of the 200 acres has already been given to other companies, indicating that the state has reconciled to the fact that the deal is off. The state is apparently planning to give away the 300 acres as well. “We are technically holding on to the 300 acres of land for Peugeot, but I think the project is off,” a senior state government official told Business Today on condition of anonymity.

Peugeot, however, says that India is a strategic market for the company and that its association with the Gujarat government remains “positive and strong”. In an email to Business Today, a company spokesperson says Peugeot had announced its intention to “reschedule” the project in February 2012, as the European market crisis hurt its cash flows and profitability. “The timing of the introduction of Peugeot is being revised in line with the rescheduling of the project,”the spokesperson says.

Peugeot’s decision to go slow on its India plans is not based on any local factors but on problems it is facing in its global operations. The company’s sales in Europe, its main market, have been falling. It suffered a consolidated loss of e745 million (`5,400 crore) in the first half of 2012, compared with a profit of e904 million a year earlier. It now aims to mobilise all its resources to turn around its operations in Europe. Peugeot is set to implement a cost-savings and production tie-up with General Motors to shore up both their fledgling European operations.

This was Peugeot’s second entry into India. The first was in the 1990s when it tied up with Premier Automobiles, but the venture did not succeed. “Having already exited an Indian venture earlier, the company seems to be reluctant to give the perception that it is packing its bags for good again,”says an auto industry insider. “Even if Peugeot revives its India plans, it is not likely till the end of 2015/16, at the earliest.”

Where does Peugeot’s new plan leave Sanand? Industry executives say the development will not affect Sanand’s fortunes. Tata Motors is already making Nano cars at its factory, Ford is constructing a plant and several auto parts suppliers have also set up units. “It is Peugeot’s loss if it has decided to leave Sanand for whatsoever reasons,” says Yatindra R. Sharma, Managing Director at packaging company KHS Machinery and former chairman of the Gujarat chapter of the Confederation of Indian Industry.“Sanand becoming an auto hub of western India is a foregone conclusion.”