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PeugeotSignPSA Peugeot Citroën will build a fifth factory in China to increase its production there by a third, as it races to catch up with rivals in the world’s biggest car market.

Peugeot said on Wednesday that it has been given clearance to build a new plant in Chengdu, in central China, that will begin production in 2016 with the capacity to build 300,000 cars a year.

Peugeot, which turned to Chinese partner Dongfeng Motor Corp in February for a bailout, has made growth in Asia the centrepiece of its turnround strategy aimed at stemming years of losses and falling sales.

The French carmaker, which sells 60 per cent of its cars in Europe, suffered heavily as car sales fell on the continent to a two-decade low last year, racking up combined losses of more than €7bn in 2012 and 2013.

In response, Peugeot changed its chief executive and negotiated a €3bn capital increase from Dongfeng and the French state this year, and pledged to restructure European operations and focus on emerging markets.

Crucial to its possible turnround is a promise to ramp up sales in China, where rivals such as Volkswagen and General Motors have at least a decade head start and rely heavily on the country for sales growth and profitability.

Greater China made up 26 per cent of global car and small van sales last year, up from 8 per cent a decade previously, according to AlixPartners, a consultancy.

The factory will take Peugeot’s total production capacity in China to 1.2m cars by 2016. By comparison, the Volkswagen Group targets total capacity of 4m by 2018 in the country.

Peugeot sold 557,000 vehicles in China in 2013, and is expecting to surpass 700,000 sales this year, out of a total market of close to 20m vehicles.

“We believe China could make up [around] 60 per cent of PSA’s pre-tax profit in 2016,” investment bank Exane BNP Paribas wrote in a note.

The factory will be the fourth operated by its joint venture with Dongfeng. Peugeot also has a joint venture with Chinese carmaker Chang’an, which operates one factory.

The new plant will build SUVs and other large vehicles under the Citroën and Peugeot and Fengshen brands, the company said.

(Source: Financial Times)

Posted by Sue Robinson on 04/07/2014