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PSA Reverses Course, Will Make Low-Cost Cars

Executive Summary

Three projects are planned, including a production version of the Citroen C-Cactus concept that bowed at the 2007 Frankfurt auto show.

PARIS – PSA Peugeot Citroen, once firmly against any move toward making “low-cost” cars, now has three projects that tend in that direction, without the label.

In France, the hybrid Citroen C-Cactus concept unveiled at the Frankfurt auto show in 2007 has come back to life as a 2013 project for a project called the Essentielle, a back-to-basics car.

In Vigo, Spain, the auto maker is developing a “heart of the range” car to sell in markets such as North Africa, South America and the proposed plant in India.

In China, assuming the government approves a proposed joint venture, PSA and Chang’an plan to make light-commercial vehicles under a new brand, as well as the upscale Citroen DS line.

The Essentielle project is emblematic of the strategic direction. The C-Cactus was presented as an exploration of how people would accept reduced content in trade for the better fuel economy of a hybrid or a battery-electric vehicle.

Now, PSA has decided some consumers will purchase a de-contented car with an internal-combustion engine.

Gilles Michel, before he left in December 2008 as head of the Citroen brand, said Citroen would make a car based on the idea of the C-Cactus.

Now Vincent Besson, PSA’s director of product strategy and markets, reveals a few details: The car will be 13.8 ft. (4.2 m) long, have four seats and a top speed of 81 mph (130 km/h) and arrive in 2013.

Leaks from the factory in Mulhouse, France, indicate that plant has been chosen for production, probably to replace the Peugeot 206+ that is slowly declining in volume. Mulhouse also makes the Peugeot 308, Citroen C4 and Citroen DS4, all cars on Platform 2, which would be the size of the Essentielle.

The limited top speed signals a smaller engine. PSA is developing a line of 1.0L direct-injected 3-cyl. gasoline engines making 70-100 hp that save 55 lbs. (25 kg) of mass.

Citroen’s idea is to position the car not as low cost but as simple, functional, clever, unique and “fair cost,” and another step toward achieving fleet average carbon-dioxide emissions of 95g/km.

The business case for the C-Cactus wasn’t made until the new CO2 rules arrived, says Besson. The new goal encouraged Citroen to reflect on how to re-orient features and performance “without becoming a minimal or low-cost car.

“Is it necessary on some entry-level models to have high top speeds, electric windows and seats?” Besson says.

The C-Cactus had half the components of a comparable car at the time, and that idea remains with the Essentielle project. In addition to the advantage of better fuel efficiency, fewer parts and less mass mean less material, lower cost and easier assembly.

The Peugeot brand will not have a version of the Essentielle, because the project is risky and Peugeot’s strategy is to move the brand upscale, reinforcing its character.

The PSA vehicle destined for production in Vigo, Spain, will be shared by both brands. PSA has indicated it will be a car “at the heart of the range” for the middle class in emerging markets, indicating it won’t be small, but will be basic – the formula Renault followed for its Dacia Logan lineup.

Peugeot General Manager Vincent Rambaud says that when PSA establishes a plant in India, a version of the Vigo car is foreseen as the first product.

The Chinese project is the least certain for the moment, as the government there has not yet approved the PSA-Chang'an joint venture. However, PSA is proceeding as if it will be approved.

Citroen will present the Citroen DS5, the top of its lineup, at the Shanghai auto show in April as a sign it is committed to China. The potential venture with Chang’an would build the Citroen DS3, DS4 and DS5, as well as the proposed light-commercial vehicle lineup under a new brand.

And when PSA CEO Philippe Varin presented the company’s 2010 results in February, he admitted the possibility of using a third brand to enter the “low-cost” market without semantic sidestepping.

PSA’s strategy doesn’t exclude the idea that PSA could be present in the low-cost segment, Varin said.

“Our development in China and India will give us options, but if we do it, it will not be with the two brands we have now. It would be a new brand, or if we take the case of our second joint-venture in China, we have already agreed to develop a new brand there.”

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