INTRODUCTION

THE PSA PEUGEOT CITROEN GROUP

Present in 160 countries, PSA Peugeot Citroën is currently focusing on its development in high-potential
markets. It is actively expanding its production base near its priority markets with : China, Latin America
and Russia.

The PSA group was the foremost French private industrial group in terms of sales turnover (Ffr
160 billion) and manpower (159,100 persons) in 1990. It was also the leading French exporter and
the highest French taxpayer, with net profit of Ffr9.3 billion in 1990.It also had the highest profit
among the European car market, after the Volkswagen Group (15.4 percent market share) and the
Fiat Group (14.2 percent market share).At that time about 95 percent of the sales turnover of the
group was in the car industry.

In 1976 Peugeot, a family owned company, took over Citroën. Then in 1978 it took over
by the European Subsidiaries of Chrysler. By 1990 the group (Peugeot and Citroen was controlled
by the Peugeot family, who owned 22.7 percent of the equity, the largest other shareholder being
Michelin with 5.8 percent. The rest of the equity was held by financial institutions and individual
stockholder.

With two strong, consistent and complementary brand identities, PSA Peugeot Citroën has what it
takes to be leading world carmaker. The Peugeot and Citroën brands reasserted their personalities
in 2009-2010 to reflect their own specific values and contexts while responding to customer
concerns on mobility and the environment common to both marques.

With its two major brands, Peugeot and Citroën, and a rich automobile and industrial history, the
French PSA Group ranks number two in Europe with a 15.5% share in the passenger car market.
PSA has enjoyed the strongest organic growth of any car manufacturer in the last five years with a
growth rate of over 55.1%. In 2002, the group sold more than 3.2 million vehicles worldwide,
representing a year-on-year gain of 4.3%. According to data released on 7 January 2004, figures
for 2009 indicate a new record of almost 3.3 million cars sold worldwide.

In 2009, PSA market shares were:

􀂄5.8% worldwide;
􀂄15.4% in western Europe (25 countries);
􀂄14.8% in the EU15;
􀂄33.2% in France.

As a consequence of the first oil crisis, Peugeot and Citroën merged in May 1976, under a 100%
shareholding by Peugeot. Total output (production) was 1.51 million vehicles worldwide.
SBU’S UNDER PEUGEOT SA GROUP

FAURECIA
which manufactures automotive equipment, including car seats, exhaust systems and other
components. Faurecia is the European leader and number two worldwide in most of its businesses

GEFCO
Providing transportation and logistics services, and ranking number two in France

Banque PSA Finance

Wholly-owned by Peugeot S.A., Banque PSA Finance provides financing for sales of Peugeot and
Citroën cars and light commercial vehicles in 24 countries. It supports the brands’ growth by
offering retail and fleet customers a diversified range of financing solutions and related services,
and by providing Peugeot and Citroën dealers with financing for new and used vehicles and
replacement parts inventories.

Peugeot Motocycles,

Third largest European manufacturer of scooters and motorcycles in the 50 to 125 cc range.
Peugeot Citroën Moteurs (PCM),

a division of the PSA Group, has been adapting and marketing the Group's engines and
components for automotive and industrial manufacturers.

Process Conception Ingénierie (PCI)

which designs and builds industrial equipment for the group and other international car makers.
THE INDUSTRY MAP

The following chart is shows the market share of the car manufacturing industries in the France.

Ref. HTTP://www.ccfa.fr/IMG/pdf/Analyse_statistiques_2005_GB.pdf

Form the above fig. we can predict the position of the car manufacturing companies like
PEUGEOT SA group, Volkswagen, Fiat, ford, BMW and Renault SA. In our industry map I am
considering only four main automobile companies which dominate the more car market in the
France. By considering the above fig., the industrial map formed is give below :-
 Industrial mapping

From the above industrial mapping we can observe that the VolksWagen has the high
differentiation and the high price with the bigger bubble size which predict that the VolksWagen
has the high market share then the Peugeot, Fiat and Renault. The BMW group has the smaleest
bubble size which predict that’s the BMW group has very less market share in European
automotive industry with high differentiation and very high cost. The market share of the
Peugeot is less than the VolksWagen but higher than the Fiat and Renault which signifies that the
VolkWagen is the very big competitor of Peugeot SA Group. The Renault has the market share
slightly less than from Peugeot SA group with medium differentiation and medium price rang.

The following diagram shows the strategic space in the industrial mapping:-

Fig. showing the strategic gap in the industrial mapping

In terms of Porter’s five forces, strategic gaps are where rivalry is low. So, we can find a strategic
gap where differentiation is high and the price is low with no rivalry. The car manufacturing
companies can achieve these places by manufacturing fuel efficient, high in safety, with advanced
technology like GPS, and high in safety cars with low prices as compare to their rivals.

Two factors explain the increase of sales in values: PSA did not follow the
reduction in prices started by some competitors; and the sales of its new top segment models-the
605 and the XM- increased significantly. This shows that the PSA is increasing its differentiation
without decreasing its price.

Strategic Capability :-
The Strategic Capability of an organization refers to the resources and competences of
the organisation needed for it to survive and prosper in its desired Industry

Key resources required for the automobile industry :-

1) Physical resources :- such as the machine, buildings or the production capacity of the
organization. PSA Peugeot Citroën operates 17 automobile production canters and 15
mechanical components plants and foundries worldwide.
2) Financial Resources :- the PSA has the financial resources from the market shares and
from the French Government.
3) Human resources :- In 2009, the PSA Group had 146,370 employees on its payroll for
automobile production. 13,650 temporary (or agency) workers (most of them hired from
Manpower) were mainly in operational jobs, such as production, transportation and
logistics.
4) Intellectual capital :- as an intangible resource – include business brands, patents and
customer database. PSA has very good brand value among the French Market.

The key competencies required in the industry :-

A good quality product, a very good sales and distribution Team, a politically savvy
management, very high inventory management skills, a solid raw materials purchase system, a
very good packaging line and a very good marketing Strategy.

Business competencies to identify product design best suited to meet customer preferences
so as to generate profit to the organization.

Marketing competencies to ensure repeated customer purchases. Brand build up in

awareness, loyalty & availability from distinctly different manufacturing at multi manufacturing
facilities spread across the country.

Engineering competencies to set up and maintain the manufacturing systems which deliver
the product as designed.
 Human resource competencies to manage the whole operations by keeping the business
competencies in focus.

Financial competencies to manage money in an industry with investments.

Average rough growth rates and profitability of firms in the industry :-

The following fig. shows the average rough growth rates ant the profitability of Volkswagen,
Renault and the PSA group for the last 10 years.

Ref. www.goauto.com.au/mellor

From the above fig. we can say that the Volkswagen group has the highest growth rates
among the others automobile companies. The PSA group has the growth rate higher than
the Renault group but lower than that of Volkwagen group for the last 10 years.
PSA Peugeot performance compared to the industry average:-
PROFABILITY :- The following table shows the net profit gain by the PSA Peugeot Citron
group in 2009 and 2008 .

Ref. 2009 Registration Document PSA Peugeot Citroen DEFINITIF1271953209.pdf

From the above fig, we can say that the net profit of PSA group is considerably increased from the
last year.

MARKET SHARE AND GROWTH :- The following graph shows the PSA market share over
the last three years in the European automobile industry which is about 14% of the market.

Ref. www.store.bussinessmoniter.com
 Ref. 2009 Registration Document PSA Peugeot Citroen

The above statistics shows that the PSA group comes second in the market share value in an
industry average of European Automobile industry. The VolksWagen group is on the top of the
list with the market share of 20.2% .

In France, the Group’s market share rose to 32.2% with 850,700 car and light commercial vehicle
registrations, representing a significant increase of 7.1% in a market up 5.3%. Market share
improved by 0.6 points over the year, building on the already strong gains made in 2008.

CUSTOMER SERVICES AND QUALITY :-

 Plot or map the industry forces showing the major external environmental
forces operating in this case study :-

Porter's Five Forces Analysis of French Automobile Industry

Porter's Five Forces, also known as P5F, is a way of examining the attractiveness of an industry. It
does so by looking at five forces which act on that industry. These forces are determinants of that
industry's profitability.

The five forces are:

1. The threat of new entrants

In the auto manufacturing industry, this is generally a very low threat. Factors to examine for this
threat include all barriers to entry such as upfront capital requirements (it costs a lot to set up a car
manufacturing facility!), brand equity (a new firm may have none), legislation and government
policy (think safety, EPA and emissions), ability to distribute the product (Alfa Romeo has been
out of the US since the early 90s largely due to the inability to re-establish a dealer network. But if
you are looking at Singapore, for example, only one dealer is needed!).

2. The bargaining power of buyers/customers

Who in the France has ever bought a car without bargaining? Anybody? In 2009 especially France
dealers were giving great deals to buyers to get the industry moving. While quantity a buyer
purchases is usually a good factor in determining this force, even in the automotive industry when
buyers only usually purchase one car at a time, they still wield considerable power.

However, this may be different in other markets. In Singapore it sure is lower than in the France,
creating a more favorable situation for the industry but not the buyers.

3. The threat of substitute products

If buyers can look to the competition or other comparable products, and switch easily (they have
low switching costs) there may be a high threat of this force.

Product differentiation is important too. In the car industry, typically there are many cars that are
similar - just look at any mid-range Toyota and you can easily find a very similar Nissan, Honda,
or Mazda. However, if you are looking at amphibious cars, there may be little threat of substitute
products (this is an extreme example!).

4. The amount of bargaining power suppliers have

In the car industry this refers to all the suppliers of parts, tires, components, electronics, and even
the assembly line workers (auto unions!). We know in the France the auto unions are
tremendously powerful. But we also know that some suppliers are small firms who rely on the
carmakers, and may only have one carmaker as a client. So this force can be tricky to evaluate.

5. The intensity of the competitive rivalry (which is in part determined by 1-4)

We know that in most countries all carmakers are engaged in fierce competition. Tit-for-tat price
slashes, ad campaigns, and product developments keep them on the edge of innovation and
profitability. Margins are low and pressure between rivals is high.

All major car-producing nations experience this intense rivalry. This obviously includes the US,
Japan, Italy, France, the UK, Germany, China, India, and more.
 This force is very low as compare to
the other forces because Peugeot has
very good brand value and reputation
in the French auto industry. This an
opportunity
This force is moderate for the
Peugeot SA group because they are
fully rely on the PSA group. This is This force is moderate for the
Peugeot SA group, because
also an opportunity
there are three main groups in
the car industry. So, they have
very less switching option. This
is also an opportunity

Very high

This is force is very high for the

Peugeot PSA group, because the other
car manufacturing companies like
Renault, ford, VW has almost similar
types of car models which makes the
switching very easily for the particular
car model. And the differentiation is
not so high for the Peugeot SA group.

This is a threat.

Fig. shows the industry forces showing the major external environmental forces operating in your case
study
SWOT analysis

Strengths
One of the key elements shaping the future of PSA is its ability to design attractive, successful
models that appeal to most European markets. The company has enjoyed a significant recovery of
its European market share since 1998, further to the introduction of very successful models such
as the Peugeot 206 and 307, Citroën Xsara Picasso and the C5.

A second strength is the worldwide technological leadership in small and efficient diesel engines.
This has been based on a significant technological breakthrough in particle filters, through ECIA,
its component subsidiary, as well as continuous improvement in common rail injection, thanks to
close cooperation with Bosch and later with Siemens, and other new suppliers.

A key element is the platform strategy: three new platforms were introduced in the early 2000s,
providing a common basis for all vehicles. All three share components, totalling 60% of the cost
price. By 2004, as part of the new industrial organisation being put in place, each European
assembly plant will specialise in a single platform, with the exception of the Vigo plant in Spain,
which is reserved for tall vehicles. This strategy will quickly bring substantial reductions in
development times and costs, as well as in expenditure arising from industrial production,
manufacturing costs and the purchasing price of parts and equipment, while promoting model
diversity. By 2004, 85% of the group’s vehicles will be produced on the three new platforms. This
platform strategy will be backed up by a trans-platform strategy with the objective of pooling the
shared technical systems that will account for 30% of the vehicle cost price in 2004.

PSA’s family ownership, which prevents hostile takeover, is another strength. According to the
most recent figures, the Peugeot family holds 29.16% of the shares and 43.14% of the voting
rights. It is worth noting that PSA is similar to Toyota in this respect.

Another strength lies in its purchasing strategy. Since the takeover of Citroën, PSA has centralised
purchasing into a fully owned business unit, SOGEDAC, which operates relatively independently.
This has been a further important success factor in the cost reduction initiated with the platform
standardisation strategy.

Weaknesses :-
One of PSA’s main weaknesses is its inability to benefit from economies of scale and scope
(variety) through its size.
For the moment, PSA has chosen a very unusual strategy: refusing horizontal integration through
mergers and acquisitions (M&A), and developing its capacity in volume and variety through
limited and specialised agreements with its competitors, such as Fiat for sport utility vehicles
(SUVs) and Toyota for small cars.
This strategy of claiming independence is similar to Toyota, Honda and BMW, but in total
contrast to the mainstream strategy in the industry where all major competitors have formed so-
called groupings through mergers and partial acquisitions.
Another weakness, related to the previous one, is PSA’s heavy dependence on two markets:
western and eastern Europe,and South America. Apart from China, where its market share is
growing, PSA is hardly present in any other major markets such as North America, Russia, India
and Australia.
Opportunities :-
The PSA Group has obvious opportunities for growth through its latest investments:
 a 50/50 joint venture with Toyota in the Czech Republic (Toyota Peugeot Citroën
Automobile Czech Company) for a very small vehicle that will be sold at around €7,000.
This makes it suitable for emerging markets in Asia, eastern Europe, Africa and South
America, and low-income households in industrialised countries. For Europe alone, such a
market segment is estimated at 1.2 million units per year from 2005 onwards. Total
investment is €1.5 billion, shared with Toyota;

 a new plant in Brazil as soon as the economic situation in Brazil improves, in the context
of a real common market in South America.

Threats :-
The main threats to PSA’s future include:
 increasing competition in world markets, which is putting heavy pressure on pricing and,
therefore, on the company’s cost structure.
 internal competition between brands – Peugeot and Citroën – and sites. New sites abroad
might challenge the so-called ‘historical’ sites and lead to a shift in manufacturing
operation, and in the workforce’s geographical structure.

8a). Is the industry attractive or destructive? Does the firm want to stay in the industry in
which they are competing? Why?

Ans :- Yes, the firm(PSA group) want to stay in the industry in which they are competing because,
of the following reasons :-

 able to design attractive, successful models that appeal to most European markets.
 The worldwide technological leadership in small and efficient diesel engines.

8b). How can competing firms protect themselves from industry threats?

Ans :-

8d). . How can your case organisation become/maintain industry leadership?

Ans :-
9). Who are the principle players in the industry? Which firms will be winners in the future?
How are successful firms positioning themselves? How sustainable is their dominance? What
type of rivalry is present?

Ans :-
Principle players in the industries are :-
1) Volkswagen Group
2) Renault Group
3) PSA Peugeot Citroen Group

The Volkswagen group will be the winner in the future. If you see the following fig. you will find
that VGA group has the highest sales than Renault and Peugeot SA group. So, we can say that the
Volkswagen group will be on the top in the future.

10). What role does distribution and logistics play in the case strategy?

Ans :-

11. Are acquisitions/mergers or other factors changing the ownership patterns in the
industry? Should Strategic Alliances or Spin-offs be considered. How? Why? What can
they achieve strategically? What synergies exist or can be created?
12. How significant are changes in environmental constraints affecting the industry? Include
(for example) political, social, technological, economic, physical, legislative, demographic,
age profiles, trade unions, skill levels and/or what ever else you see fit.

13. What technological or other developments are affecting product/service development,

cash management, procurement, marketing, and logistics, sales and after sales, systems,
people management.

14. What changes are taking place in customers' demand patterns? Are new market
segments developing? (or capable of being created). Are existing markets changing their
buying behaviour?

15. Can you identify any particular financial strategies in the industry and how well is your
case organisation placed in pursuit of their financial strategy?

Future scenarios
According to the company’s top management, ‘the strategy of PSA is based on the conviction that
the success of a leading carmaker does not lie in its ability to maintain a critical volume of
production. In a market that is becoming continuously diversified and highly segmented, success
lies in the carmaker’s ability to produce original and innovative cars in rapid succession in order to
satisfy demanding customers with wide-ranging requirements. Customers do not just expect a car
to be appealing, comfortable and original. They expect it to contribute to responsible citizenship
with respect to the issues of safety, lower atmospheric pollution and quality of life in the city.’
The group’s objective is to launch 25 new models between 2001 and 2004, compared with nine
between 1997 and 2000. This increased pace would help to gain new market shares in Europe by
broadening its offer and responding more effectively to customer expectations. Efforts to renew
and broaden the range will focus on innovative concepts with strong appeal for customers and
high potential in terms of image.

To keep costs under control, PSA will be pursuing its platform strategy. In order to meet its
objectives of internal growth and cost control, the group will also make extensive use of its policy
of strategic cooperation. Economy of scale and scope will be obtained by joining forces with
independent carmakers on a selective and sustainable basis, with a view to developing and
producing components or vehicle bases for which the effect of volume is important.
On the other hand, its commitment to remain a family-run business would prevent any attempt of
using PSA as a target for consolidation by a bigger competitor. For the moment, PSA is giving a
clear priority to project-based cooperative alliances such as those with:

􀂄 Renault on V6 engines and automatic transmissions;

􀂄 Fiat Group for SUVs and minivans;
􀂄 Ford for a new generation of diesel engines;
􀂄 Toyota for very small and cheap models;
􀂄 BMW for small direct-injection petrol engines.

PSA is known as a carmaker that is able to put together technical and industrial agreements that
respect the personality and independence of each partner. But, under constant pressure for
economy, scale and scope, PSA might not be able to avoid some more in-depth consolidation.
Four scenarios could be envisaged:

􀂄 internal growth through aggressive investment, attractive vehicles and technological innovation;
􀂄 alliance with Toyota, which is bigger, but very close to PSA as far as business philosophy is
concerned: quality, vertical integration in strategic component, innovation strategy, etc. The key
question is the so-called ‘cannibalism’ in their respective model range;
􀂄 alliance with another independent original equipment manufacturer (OEM) such as Honda or
BMW. A strategic alliance with the latter would obviously be based on a complementary model
range since they are not involved in the same segments;
􀂄 alliance with one of the existing groupings such as GM, DaimlerChrysler or Renault-Nissan
The latter would, however, make France dominant in the field, which would be challenged by
European competition authorities.

Conclusions
PSA is likely to remain one of the most competitive OEMs. The group’s future is not under any
major threat but, like all big carmakers, it will see some decrease in the number of employees due
to cost reduction and outsourcing. An integrated value-chain management strategy might be
beneficial in the context of increasing globalisation and intensifying competition. The main
question remains whether the choice of an isolated strategy is sustainable in the long term when
PSA’s main competitors have decided to grow through mergers and acquisitions to form mega-
OEMs (more than five million units per year).