PSA goes upmarket in China image

Peugeot and Citroen prepare to shift upmarket and challenge the likes of BMW in the world’s largest auto market, with production just starting of upscale DS models at a new factory in Shenzhen, part of an 8.4 billion-yuan ($1.37 billion) joint venture.

With growth in other emerging markets flagging or non-existent, China is key for Peugeot, as it seeks to stem losses and reduce its reliance on Europe’s recession-battered car market.

China represents one of Peugeot’s last bastions of growth outside Europe and critical to the company’s goal of selling a majority of its vehicles overseas for the first time by 2015. Peugeot, the second-largest carmaker in Europe, forecasts sales to decline this year in Russia and Brazil, while Indian operations aren’t yet up and running.

With the addition of the factory in Shenzhen, Peugeot will have capacity to build as many as 950,000 vehicles in China a year, more than double 2012’s sales of 442,000 autos. The introduction of the DS line in China is part of Peugeot’s goal of raising its share to 5% in two years from about 3.8% now.

“France is a romantic, fashionable place,” said Xue Zhitao, brand manager of Peugeot imports in Chengdu in southwest China. “When you mention France, you think of red wine and perfumes, so we use these at promotional activities,” where wine is served and given away along with perfume.

To support these models, Peugeot has opened 34 Chinese DS dealers after introducing the brand in June last year and plans to increase the number to 100 by the end of 2014. The company unveiled the world’s first flagship DS World store in Shanghai in March, which features vintage cars and the latest models in a sleek glass-front boutique.