Opinion: Is PSA right to add new capacity?
From: hugo_steincamp (norgo@cybertrails.com)
Date: Mon 18 Nov 2002 - 23:16:18 EST
RICHARD JOHNSON: Is PSA right to add new capacity?
Automotive News Europe / November 18, 2002
EVERYONE TALKS about overcapacity and some companies are even doing
something about it. But PSA/Peugeot-Citroen certainly isn't one of
them.
In fact, PSA is adding capacity, 600,000 units by mid-decade with
some help from Toyota. By building car plants at a time when others
are shutting them down the French company is aggravating a bad
situation. Or is it?
PSA doesn't even agree that there is a problem. Chairman Jean-Martin
Folz has a typically contrarian view. He doesn't acknowledge the
concept of "overcapacity" that others talk about so much. To Folz,
capacity is a purely theoretical concept. That's partly his
intellectual approach to business. Folz just sees things differently.
But then he has never had to lead an auto company through a crisis.
He's run PSA for five years, five good years, and before that he was
in the sugar business. Folz has never seen serious trouble from the
inside of the auto business. He's never felt the sting of
overcapacity.
So does PSA have a responsibility to the rest of the industry? Does a
single auto company pay the price for its own excess capacity or does
the entire industry have to pay? Maybe PSA can't meet its current
demand, but won't the pressure on prices caused by two new car plants
hurt all parties concerned? Maybe PSA should have held back this
time.
Of course, no auto executive really believes that and Folz certainly
does not. This is private enterprise, not a centrally planned
economy.
What's more, central Europe - where both new plants will be located -
presents an extraordinary opportunity that PSA is in a perfect
position to exploit. Central Europe is shaping up much as America's
southern states did in the early 1990s. It's become the New European
Manufacturing center.
Suppliers are rapidly shifting capacity into the region. It's easier
for parts makers to do than high-profile carmakers who are subject to
severe social criticism. But the vehicle manufacturers are coming,
too.
For now, central Europe means the Czech Republic, Poland and Hungary.
The future has arrived in those countries. Costs are low, the quality
of work force is high, the supply base is developing fast and local
markets are ready to grow as the EU expands to include them.
Five years ago, then-Honda President Nobuhiko Kawamoto said: "In our
experience, in former Communist countries, it is not the habit of
people to work hard, nor are they trained to do exactly what they are
asked to do. Even with sufficient salary they don't want to follow
instructions."
But carmakers and suppliers are now hiring workers for whom communism
is a vague, distant memory or else a legend handed down by their
elders.
PSA's new plant is not just a vote for central Europe, it's a vote
for Europe. PSA could have invested in China or North America or
South America. Instead it decided to stay in the region. Ten years
ago, under different circumstances, PSA made a similar choice, though
it really had no choice back then. It couldn't afford to go global
when many others did.
Because PSA was forced to concentrate on Europe it thrived in Europe.
And it was not overextended in several highly vulnerable emerging
markets that eventually did collapse - all but burying the likes of
Fiat Auto in the process.
PSA is right - right to build a new plant and right to build it close
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