1 for the next twelve months and then to 1

A giant seeks housing twenty brand new vehicles, the hostesses of home as numerous as in an international fair, this Argentine President with half of the Government... PSA celebrated in mid-June, with pomp the launch of the industrial production version of its 307 Sedan (notchback, with four doors and trunk independent of the passenger compartment), in its argentine plant of Palomar, a suburb of the capital Buenos Aires.

Beyond the glitter, this event reveals a major focus of the international strategy of the Group of the avenue de la Grande Armée on the merits. "We are witnessing simultaneously to an erosion of the profitability of manufacturers in Western Europe and a significant improvement in profitability in South America." "We have therefore no hesitation in develop us", explains the CEO of the French group, Jean-Martin Folz. The amazing rebound of the Argentine market (see box) and the rise of the Brazil provides, in fact, the French Builder of many reasons to hope.

Exchanges between the Brazil and the Argentina

The main industrial bet of PSA Peugeot Citroën is to focus on the integration of the continent, and in particular on the links Brazil-Argentina in Mercosur, the customs union South American. While many manufacturers concentrated their production to the Brazil after the 2001 crisis, the French group has chosen to match in both countries: to the Brazil, where Porto Real plant produces small models of the group as the Citroën C3, and Argentina, where the site of Palomar is dedicated to the cars of medium range as the 307. These sites generate this year about 100,000 vehicles each, shipping totally balanced way their production (20 of the Brazilian production is in Argentina, and vice versa).

"I have therefore asked Argentine President Nestor Kirchner that negotiations within Mercosur support term a business like ours that has a balanced policy of production and export, in contrast to those who choose to saturate the Argentine products market Brazilians", explains Jean-Martin Folz. The South American customs union covers indeed yet the automotive sector, as Argentina's President wants to avoid too great invasion of the cars manufactured in the Brazil (see box). "We continue to be obstacles to free trade in the products as well at the level of trade of cars, parts and components between the Brazil and the Argentina," complains the CEO of SAP, which qualifies: "by investing in South America, we are aware that the economic and political framework can be brutal changes." Jean-Martin Folz hope including improvements on the export taxes and a reduction in tariffs for extra parts area.

Acceleration of local integration

In the meantime, SAP develops much local integration (parts purchased from OEMs local rather than import them to Europe by paying taxes), which today reaches 70 on average on models produced in Argentina. In this context, it has recently signed an agreement for ten years with Fiat for the production of gearboxes (140,000 units per year) in Córdoba, aimed at the site of Palomar, but also to Brazil Porto Real plant. The French manufacturer also has its own mechanical plant, Jeppener, which manufactures engines 1.9 l and 2 l HDi and links to the ground, also exported to the Brazil. Finally, the group currently built a distribution centre in the province of Buenos Aires, with an investment of 15 million, $ 7.5 million for the construction of the site and 5.5 million for its equipment of last generation. In 2007, the C4 will be added to the five models already produced in Argentina (Peugeot 206, 307 307, 5-door Sedan and Partner, Citroën Berlingo).

The constructor has launched an investment plan of 150 million (EUR 117 million) in Argentina for the period 2005-2007. In an Argentine market increased by 19 in late May 2006, the French manufacturer sales grew 29. The market share reached 14.6, placing the French at the forefront of Argentine automakers, including leading front of Ford production since early 2006. Workforce from 1,500 direct employees in 2002 to 3 900 in early 2006 and they should reach 4 900 on the 2007 horizon. The Group has expanded its commercial network (100 points of sale in the country), and today exports about 75 of its production in Latin America (Brazil, Mexico, Chile...).

To the Brazil, where PSA has been slow to implement unlike other Europeans such as Volkswagen and Fiat, the Group has posted growth of 38 at end of may in a 10 increase in market. Its market share reached 5.6, which made him the fifth Brazilian constructor, "but the first of the newcomers," insists Jean-Martin Folz, who refuses to state the amount of current investments. "Since 1998, as part of its commitments to the Brazil, we have invested 750 million for the construction and extension of its plant", said just group. If the current growth of the local market is confirmed, the Brazilian plant, which employs 2 250 people in two teams should hire a third team. As in Argentina, the constructor, to reduce its costs, developed its rate of local integration, which is approximately 75. To the point of

think today to create a flow of importing components of the Brazil to Europe, for example to the rims of the 206.

Exports out of South America

Located in the State of Rio de Janeiro, Porto Real plant produced since 2000 Citroën Xsara Picasso (93 500 units in 2005) and the Peugeot 206, which have been added to Citroën C3 (2003) and the 206 SW (2004). A technopole, located in the immediate vicinity of the site, is dedicated to the suppliers. Since March 2002, it also manufactures engines 1.4 l and 1.6 l 16V for vehicles manufactured in the Brazil and Argentina also. Last year, Puerto Real has started production of motors flex fuel 1.6 l and 1.4 l exclusively dedicated to the Brazilian market, marked by an explosive development of the ethanol fuel.

When exports of complete vehicles from the South American continent "It is true that we are studying this hypothesis," said tersely group.

On the financial and business plan, the French automobile group sees the end of the tunnel. After a negative contribution of EUR 200 million on the operating margin in 2002 and 2003, the South American activities have reduced their impact to 150 million in 2004 and 100 million in 2005. "We will achieve positive results in this year and make of annual profits from 2007," Announces Jean - Martin Folz.

BOX .

Jean-Martin Folz: "our South American plants have an oriented".

"The two plants we have in the Brazil and Argentina have a real oriented, first to Latin America, which is their market of choice." The argentine Palomar plant exported 25 of its production last year. "This figure should rise to about 50 this year and it is even 75 of production exported next year, mainly to the Brazil and the Mexico, two major markets in the region."

BOX .

A spectacular rebound of the Argentine market

With the return of growth in Argentina, the automotive market found colors. The progressive renewal of the fleet of taxis in Buenos Aires shows that Argentines have begun to spend in their car. The market was collapsed to 93 500 registrations in 2002. Despite an average increase of the price of the vehicles of 115 since the devaluation, sales jumped 30 percent last year, exceeding the threshold of 400 000 units (402 690 vehicles sold). The increase had reached 100 in 2004. By 2008-2009, manufacturers intend to exceed the record of 1994 (508 152 units). The French economic mission in Buenos Aires, the variable of the funding should play a leading role to achieve this objective. 29 Salaries today need to acquire a new vehicle, against 21 in 2001 and 70 of vehicles are purchased in cash (often with Exchange of the old vehicle), while this ratio did hardly exceed 30 in the 1990s.

For its part, the automobile production jumped 23 last year to 319 755 units, responding to the force found the domestic market and the recovery of exports ( 24, 181 581 units) for external markets, starting with the Brazil, the Mexico and the Chile. The competition between manufacturers is fierce on all lines. Volkswagen remains nevertheless leader, doped by the commercialization of its Gol records, manufactured in the Brazil: it represents 60 of the sales of the mark in Argentina and 11 of total vehicles, with 43 585 units against 28 060 for its direct competitor, the Chevrolet Corsa, and 22 658 units for the Peugeot 206.

BOX .

New report for free auto trade between Argentina and Brazil

Scheduled for 2006, free auto trade between the Argentina and the Brazil comes once again to be postponed. The Argentina refuses, because she is victim of an invasion by vehicles of Brazilian origin. It must be said that 55 of cars sold in the Argentine market are imported from the Brazil. The collapse of the argentine consumer has indeed involved a redistribution of production toward the Brazil, for manufacturers such as Fiat, while the profile of the Argentine market was close eating Brazilian profile of cheaper cars.

Therefore, the Argentina now foots the Bill: its automotive trade deficit with the Brazil exceeds $ 1 billion. Between 1999 and 2004, only four models that have been assigned to the Argentina on the introduced nineteen in the region.

The bilateral trade regime includes customs duties void, conditioned by rules of origin (local and/or regional content minimum of 60) and a clearing system (called "flex") which aims to avoid that a country is invaded by the exports of its partner and would gradually lose its automotive industry. So far, the Flex allowed a manufacturer which exports $ 1 to import up to 2.6 $. Following a new agreement called for by the Argentina, the Flex has been reduced to July 1, 2006, from 2.6 to 2.1, for the next twelve months, and then to 1.95 until June 2008 limiting too strong imports the Brazil. President Kirchner of Argentina and wishes to "consolidate the automotive industry": manufacturers and Government seek an increase in the production of 30 over the next two years. Rest of automotive trade liberalization is not ready to see the day.