Peugeot: Success Driven
The embodiment of stylish European innovation, PSA Peugeot Citroen has penetrated
markets in China and South America. It will, however, need to deploy all its inventive
genes to capture South Asia and the United States.
Automobiles have long been at the sharp end
of innovation. New metals, pioneering engine
technology, novel safety systems, inventive
design. From the first Ford to the latest
Ferrari, cars have spewed seminal ideas.
Leonardo da Vinci and Isaac Newton blueprinted the first automobiles. In 1769, Nicholas Joseph Cugnot built the first steam-powered road vehicles. A century later, in 1885, Gottlieb Daimler and Karl Benz pioneered gasolinepowered cars. In the twenty-first century, hydrogen-fueled vehicles presage the future. With a turnover approaching
three trillion dollars, the automobile industry is however
speeding into a turbulent era. Most automobile dynasties
are restructuring the principles that formed the very foundation
of their businesses. In the last year alone, Chrysler
has been bought by Cerberus Capital Management and
Ford’s Jaguar and Land Rover by India’s Tata Motors.
Automobile companies have married, divorced and entered
into liaisons with each other. The offspring haven’t
enjoyed unalloyed success.
Once again, much of the action – and cutting-edge
innovation – in recent decades has centered around
Europe. Daimler, BMW, Audi, Fiat, Volvo and Renault
have been Europe’s automotive pioneers. So has Peugeot.
The second largest European automaker after Volkswagen,
Peugeot and Citroen began their partnership in 1974 when Peugeot acquired a 38.2 percent stake in
Citroen’s parent company. In 1976, Peugeot increased its
stake in the now badly hemorrhaging Citroen to 89.95
percent and created the PSA Group – today’s PSA
Peugeot Citroen. The firm is ranked no. 68 in the 2007
list of the Fortune Global 500, with $71 billion in revenue,
up 1.6 percent over the previous year.
The world’s biggest companies in the automobile sector
are General Motors with $ 207.3 billion in revenue in
2007, Toyota Motor Corporation ($204.7 billion) and
Ford Motor ($160.1 billion). Though Peugeot ranks
eighth in the industry, it is the second
largest automaker in Europe after
Volkswagen whose revenue in 2007
was $132.3 billion. With 211,800 employees
worldwide and a commercial
presence in 150 countries, Peugeot’s
unit sales grew 3.8 percent in 2007
over the previous year to 3,233,000
vehicles. The French car maker produces
rich and innovative design ranges.
It spends $3.5 billion annually
on R&D. The company’s design centre,
the Automotive Design Network,
uses pioneering technologies and virtual
reality along with physical creation
to develop a number of concept
cars and production vehicles.
The auto industry has since the
1970s been in a state of flux. The
low-cost Japanese invasion three decades
ago was to deal a fatal longterm
blow to Detroit’s Big Three. As GM, Ford and Chrysler turned and twisted, Toyota,
Datsun (later renamed Nissan), Honda and the South
Koreans came along with value-for-money cars. Meanwhile,
Europe’s prestige marquees brought cutting-edge
design and technology to America. Globally too European
and Asian automakers sped ahead.
Quietly, almost inconspicuously, in the midst of this
global churn Peugeot acquired a reputation for reliability,
innovative engineering and avant garde design. The
French firm exemplified Europe’s innovative streak:
stylish, high-tech, bespoke. And yet, Peugeot remained a
broad-spectrum carmaker unlike posher rivals such as
BMW, Audi, Porsche and Mercedes-Benz. Peugeot’s seminal
idea? Incremental engineering and design innovation.
Eschewing radical enhancements, Peugeot remained
grounded yet progressive. Its novel engine technology and aerodynamic design set both industrywide and
global benchmarks.
FLASHBACK: INDUSTRIAL ADVENTURE
From crinoline dresses and corsets to cars of
the finest quality: it has been a long journey
for Peugeot and its famous lion brand. In fact,
the logo was designed as far back as 1847 by
an engraver from Montbeliard, home town of
the Peugeots, and registered in 1858. Though
the logo has changed form several times, the
principles of the company – unwavering quality
and a wide range of products – have stayed
the same.
Peugeot’s ancestor-business began in a steel
foundry set up in a converted flour mill. Cold
rolling was soon introduced. This led to the
inevitable production of manufactured objects,
saws, and watch and clock mechanisms. A
range of products was soon being offered to
clients. By the middle of the nineteenth century,
Armand Peugeot, considered one of the
pioneers of the automobile, realized that the
future lay in the petrol engine. He struck an
agreement with Gottlieb Daimler. Peugeot
produced a three-wheeled steam-powered car
in 1889. Two years later, it established itself as
an automaker with the first petrol-fueled combustion
engine produced under the Daimler
license. The car had a three-point suspension
and sliding-gear transmission. There was promise
of even greater things to come. More cars
followed. By 1896, feeling confident of its own strengths,
Peugeot shook off the Daimler yoke and decided to go it
alone. The company quickly released its first engine, the 8 hp (6kW) horizontal twin, fitted to the back of the
Type 15 model.
Armand Peugeot and his cousin Eugene separated
their businesses in 1896. Eugene was unconvinced about
the future of the automobile. Armand founded the Societe
des Automobiles Peugeot. In 1899, his firm’s sales hit a
respectable 300. The figure represented 25 percent of cars
sold in France that year.
Realizing that in the automobile business image counts
for as much as performance, Peugeot introduced Bebe in
1901, a shaft-driven 652 cc, 5 hp, one-cylinder car. It
was a smart move. Just two years later, Peugeot was producing half of all cars built in France. It now offered a
stable that included a 5 hp engine, a 6½ hp four-seater,
an 8 hp and a 12 hp. In the decade ahead, the company
continued to introduce new models. It kept its finger placed
firmly on the pulse of changing user needs. This
unblinking attention to the customer combined with pioneering
technology has always defined Peugeot’s kernel
of innovation. The formula worked. Before World War I,
Peugeot was making 10,000 cars, still half of France’s total
auto production.
ARMS PRODUCER
As World War I struck Europe, Peugeot morphed into an
arms producer. It began manufacturing a range of military
vehicles: pedestrian bicycles, tanks and shells. After the
war, Peugeot expanded rapidly. It took over the Bellanger and De Dion companies. The cycle division, the most
profitable unit, became legally independent and began
to operate as Cycles Peugeot. In 1925, sales had increased
exponentially and the 100,000th Peugeot car left the
factory.
Peugeot’s success has always lain in its ability to establish
an emotional link with the passenger. In 1928, the
Type 183 was introduced followed by the Type 201 in
1929 – a milestone for the company as it was the cheapest
car available in the French market. Following the Depression,
Peugeot, along with other car manufacturers, went
into a downward spiral. But the innovative spirit that
had always characterized the company enabled it to survive,
even thrive. In 1933, Peugeot introduced an aerodynamically
styled range and in 1934 a vehicle with a
folding, retractable hard roof. Peugeot was cruising along
well with its Type 202, Type 302 and Type 402 models
when the Nazis occupied France. In 1946, when production
started again, 14,000 Type 202 cars triumphantly
drove out of Peugeot factories.
Highly regarded in Europe, Peugeot was slow to cross
the Atlantic. Finally, in 1958 Peugeot drove on American
soil for the first time. Though Peugeot, like other European
auto manufacturers, made a determined attempt to
attract American car buyers, it proved a rough ride.
Nearly 33 years later, when the Peugeot 405 failed to leave the starting line, selling less than 4,261 units in 1990, it
was time to pack up and come home. U.S. and Canadian
operations ceased. So far Peugeot shows no signs of reopening
them.
Two key factors account for Peugeot’s U.S. failure and
European success. First, American car buyers, blessed (till
recently) with cheap gas, have long preferred solid U.S.
and Japanese brands that deliver highway performance.
Peugeot had subtler engineering and design strengths.
These eluded American customers spoilt for choice.
Second, U.S. car buyers have a weakness for European
prestige brands. Hence the success of BMW, Mercedes,
Audi and to a lesser extent Jaguar. Peugeot was neither
fish nor fowl. Its mass-produced cars failed to beat the
Japanese and South Koreans on price. Its luxury brands
did not have the cachet of the Germans and British. The innovations that worked in Europe – engineering, technology,
design – flopped in America. Peugeot, like many
other European brands, failed the transatlantic culture
test.
Back home though, Peugeot prospered. In 1974,
Peugeot began to circle Citroen, a company which while
known for its flamboyant styling was being asphyxiated
by its inflated vision of grandeur. Too many radical models
were being introduced in too short a time. The company
lacked financial muscle to sustain growth. Peugeot bought
a 38.2 percent stake in Citroen, finally acquiring full control
with help from the French government. The PSA
(Peugeot Societe Anonyme) Group later became PSA
Peugeot-Citroen. The two brands retained their separate
sales and marketing structures but created a synergy in
technology, development and assembly.
Peugeot was now hungry for more. The group took
over the European division of Chrysler, the ailing American manufacturer. The price tag: $1 billion. It was to
prove to be Peugeot’s most serious professional blunder.
The company lost its competitive footing in the executive
car market. Peugeot created a whole new brand – the
Talbot – for the ageing Chrysler Sunbeam, Horizon,
Avenger and Alpine ranges. It proved a costly exercise.
The company took a long time to recover. Fortunately,
in 1983, the Peugeot 205 was unveiled. The car was an
immediate hit. Overall, however, Peugeot continued to
bleed. In 1986, in an attempt to reverse its fortunes, the
company ceased production of the Talbot brand for passenger
cars and in 1982 the brand itself was buried.
AT THE HELM
Jean-Martin Folz, an industry outsider appointed
Chairman by the Peugeot-family board in 1997, led the
company for the next decade. As he once stated: “The key to succeeding in this car market is to rapidly produce
cars as varied and attractive as possible and to do that at
a competitive cost.” During the Folz era, Peugeot recorded
a 60 percent increase in unit sales. It created new trends
in automotive design with the launch of such successful
models as the Peugeot 206 and 307, the Peugeot Partner,
the Citroën Xsara Picasso and the Citroën Berlingo.
The renaissance of the Citroen brand took place during
this fertile, inventive period. However, while sales
outside Western Europe tripled over the decade, growth elsewhere stagnated. The group lost market share. The
reasons were evident – Peugeot faced difficulty in managing
quality levels at a time of hyper growth outside its
home market, an aging model line-up, and increased competition
from revitalized Audi, Volkswagen, Fiat and
Renault. Profitability plummeted.
Christian Streiff, former Airbus head, took over Folz’s
job in 2007. He stated recently: “I am passionate about
this business but it is not an easy one. It encompasses fashion
trends which have to be created in volume production.
And they are very complex products... The
environment in which these products
are created is constantly evolving.”
Streiff immediately defined
the four operating priorities for the
company to return to growth and
profitability – quality, reduced costs,
product strategy and international
operations.
Peugeot decided to re-establish
a strong presence in developing regions
of the world leading to huge
investments and partnerships in
South America, Iraq and China.
Peugeot had first ventured into Asia
in 1984 with the establishment of
the Dongfeng Peugeot-Citroen
Automobile project in Wuhan,
China. Today it has ambitious plans
in that fast-growing country. Peugeot’s
inauguration of a factory in Porto Real, Brazil strengthened its presence in the Southern
Common Market.
The French automaker has introduced the platformstrategy (common platforms and their derivatives for Citroen and Peugeot models). In recent years Peugeot has established itself as the pre-eminent automotive manufacturer in deploying innovative strategies to reduce
costs by sharing engine development and whole vehicle development with other automakers. Streiff wants to continue
forging such technological and manufacturing
agreements. The company has in the past worked with
Renault, Fiat, Ford, BMW and Mitsubishi. Recently it
has teamed with Toyota. The Peugeot 107, a city car, developed
by Peugeot in a joint venture with Toyota, has proved popular giving buyers a practical alternative to
the Ford Ka and the Vauxhall Agila. Streiff believes that
there is now a great opportunity within Peugeot because
of the joint venture cooperation agreement it has with
Toyota for the production of small cars.
Peugeot has always believed in sharp styling and solid
engineering. The strategy has paid off. The Peugeot 207,
unveiled in January 2006, was the best-selling car in
Europe in 2007. The Citroën C4 Picasso has also been a
hit – as has the new light van jointly developed with Fiat,
the Peugeot Expert/Citroën Dispatch. In March 2007,
the 207 convertible coupé and the Citroën C-Crosser,
the first attempt at a compromise between an SUV and a
large saloon, proved that the company still had what it
takes to innovate, read user trends and deliver quality
cars.
For the future, the Peugeot group plans to make four
million vehicles a year and consolidate its position as the
leading ecological carmaker in Europe. The firm’s management
has set a target to achieve an operating margin
of between 5.5 and 6 percent in 2010. It is improving
vehicle accessibility, modularity, cabin brightness and instrument ergonomics. Technological innovation remains
at a premium.
Innovation is a dynamic concept, not a static one.
Peugeot underlined the novelty of its approach to declining
market share by buttoning up partnerships with rival
carmakers. That is innovative thinking. Styling and engineering
inventiveness have helped Peugeot remain at the
forefront of the West European automotive industry. Its
quirky designs have found markets in countries as diverse
as China and Brazil. But two big markets continue
to elude it – America and India. Peugeot failed in
both. In India its joint venture with local major,
Premier Automobiles, floundered due to poor
marketing and brand positioning. In the U.S. it was
out-muscled by the Germans and the Japanese.
The future? Peugeot embodies the best of European innovation: leading-edge design, engineering
excellence, canny financial partnerships. But to conquer
the markets of South Asia and North America,
the French carmaker will need to position itself as
either a low-cost mass producer or a high-end status
brand. In large, heterogeneous markets, differentiation
counts.
