PSA Peugeot Citroen - Strategic Alliances for Competitive Advantage

            
 
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Case Details:

Case Code : BSTR211
Case Length : 22 Pages
Pages Period : 1966-2006
Organization : PSA Peugeot CitroŽn
Pub Date : 2006
Teaching Note : Available
Countries : France, Western Europe
Industry : Auto and Ancillaries

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"I don't want to boast, but I can say that we are probably the champions in the sphere of the joint projects." 1

- Jean Martin Folz, President, Board of Directors, PSA Peugeot CitroŽn in 2003.

Introduction

In February 2005, PSA Peugeot CitroŽn (PSA) entered into an agreement with Mitsubishi Motor Corp. (Mitsubishi),2 the ailing Japanese car maker. According to the terms of the deal, Mitsubishi agreed to supply 30,000 units of a new sports utility vehicle (SUV) every year to PSA, which would then be sold under the Peugeot and CitroŽn marques.

The deal enabled Mitsubishi to utilize its idle production capacity, and PSA to fill a major gap in its product range. The deal with Mitsubishi was typical of PSA's strategy of entering into alliances with other major automobile makers.

Over the years, PSA has entered into long-term relationships with Renault S.A (Renault),3 Fiat Auto SpA (FIAT),4 Ford Motor Co. (Ford),5 Toyota Motor Corp. (Toyota),6 and BMW AG(BMW).7 Such alliances have helped PSA share costs, risks and investment.

In January 2006, PSA announced that its profits for the year 2005 would be less than previously estimated. 

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This profit warning - the second in three months - reflected the poor sales performance of the company's cars in Europe. 

The competition in the automobile market in Europe remained intense and this contributed to lower margins. PSA had launched several new models in 2005. Even so, worldwide sales of Peugeot branded cars in 2005 fell by 1.5%.

However, CitroŽn car sales were 3.5% higher in the same period. The Peugeot arm of PSA expected to sell two million cars in 2006.

The company hoped to sell half a million units of its new model, the 207, a compact car launched in January 2006 by the end of 2007.

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1] "Different brands, common strategy," 2003.

2] Mitsubishi Motor Co. launched its first passenger cars in 1917. Till 1970, the company was part of Mitsubishi Heavy Industries (MHI), which was founded by Tsukomo Shokai in 1870. In the 2000s, Germany-based DaimlerChrysler acquired a 37% share in the company.

3] Renault, the French automobile maker, was founded by Louis Renault in 1898. As of September 2005, the Renault group revenues touched € 30.8 billion (nine-month period).

4] FIAT or Fabbrica Italiana Automobili Torino, the Italian auto maker, was founded in July 1899 by a group of investors. In the 2000s, the company faced a severe financial crisis with losses touching $ 1.2 billion which necessitated a major restructuring exercise.

5] The Ford Motor Co. was founded in 1903 by Henry Ford and a group of investors. In 2004, the company reported a loss of $ 155 million in its automotive business.

6] Toyota, the Japanese auto maker, was established in 1937. The company has grown to become the second largest auto manufacturer in the world with net income crossing • 1,171 billion in 2004-05.

7] BMW or Bayerische Motoren Werke was founded in 1913 as Rapp Motoren Werke by an engineer Karl Friedrich Rapp. In 1917, the name was changed to BMW. The company caters to the premium segment and in 2004, its net profit had reached £ 2.2 billion.

 

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