New direction for DS as partners agree to sell stakes to Baoneng

Chongqing Changan Automobile has agreed to sell its stake in a 50-50 partnership with Peugeot SA. It marks the end of the struggling joint venture that has been producing DS-branded vehicles in China.

It will sell its 1.63 billion yuan ($234.22 million) stake to a subsidiary of Chinese conglomerate Baoneng Investment Group.

They have paid the first installment, said Changan, also a partner of US carmaker Ford, in a statement on Tuesday.

A spokesman for PSA confirmed on the same day that the French carmaker would sell its stake in the joint venture to Baoneng as well.

"The move is meant to solve the problem of the company's survival for good," said Changan in its statement.

Changan said the joint venture, established in 2011, racked up cumulative losses of 4.9 billion yuan up to September 2019.

In the first 11 months of 2019, Changan PSA delivered around 2,040 vehicles, a drop in the ocean of China's vast car market.

A total of 19.23 million passenger vehicles were sold in the same period in the country, according to the China Association of Automobile Manufacturers.

Changan PSA had failed to achieve meaningful sales since it started production in 2013.

Its deliveries were around 23,000 in 2014, but stumbled to about 3,900 in 2018, according to the China Passenger Car Alliance, a Shanghai-based consultancy.

After the deals with Changan and PSA, Baoneng will take over the company, which has two plants and an engine plant together capable of producing 200,000 vehicles a year.

Baoneng, which mainly operates in China's retail, real estate development and life insurance sectors, ventured into the automotive industry in 2018 by acquiring 51 percent of Qoros Automotive Co, a small carmaker based in Shanghai.

PSA said in a statement that the dissolution of the joint venture will not change anything regarding DS' presence and development in China.

"DS brand will deploy a new strategic approach to develop our business in this strategic market. PSA Group is fully committed to China," said the statement.

PSA's move to end the joint venture highlights how global automakers are struggling in the world's biggest auto market.

Sales started to fall since July 2017 and have shown no sign of a quick recovery.

French carmakers including PSA and Renault have been hit even harder in the downward spiral of the market.

Besides Changan, PSA runs a joint venture with Chinese automaker Dongfeng Motor Group, which produces and distributes Peugeot and Citroen cars.

But the group's total sales in China stood at 262,583 vehicles in 2018, a long way off the 1 million-a-year target it had set itself a few years ago.

Isabelle Chaboud, a luxury brands expert at French business school Grenoble Ecole de Management, said Chinese buyers don't consider French cars as premium brands, although they love French handbags, wine and perfume.

"I don't think it's a problem of quality. It's more a problem of image, or how they communicate," said Chaboud in an interview with Automotive News Europe.

PSA's CEO, Carlos Tavares, seems to recognize his company's image problem in China, saying that it is different from Europe.

"It takes more passion to communicate the values, the history of these brands and all that we have done over the last century," said Tavares at the Frankfurt auto show in 2019.