Dongfeng Peugeot Citroen, the floundering Sino-French joint venture, has vowed to boost sales by nearly 30 percent this year and take aggressive cost-cutting measures to turn the tide.

The company, jointly owned by Dongfeng Motor Corp and PSA Peugeot Citroen and based in Central China's Hubei Province, aims to produce 112,954 cars with sales totaling 114,000 in 2005, the company said in a statement.

Output fell 16.54 percent to 88,034 units while sales dropped 13.57 percent to 89,129 last year from 2003, the company said.

It is also reported that the firm accumulated losses of 540 million yuan (US$65 million) last year due to sluggish sales and high costs.

This downturn followed five years of continuous profit from 1999 to 2003.

"Our minimum target this year is to get back in the black," an official from the company, the official told China Daily.

The joint venture said it plans to slash production costs by 2 billion yuan (US$240 million) by using more locally made components, and improving sourcing and logistics.

The official said the local content rates of Dongfeng Peugeot Citroen's new cars will start at 45 percent and will rise to 65 percent and more than 70 percent in two and three years time.

Other European automakers are also increasing the local content rates of their vehicles manufactured in China to alleviate burdens bought about by a strong euro.

German auto giant Volkswagen, which runs two car joint ventures in China, said last year it plans to raise the local content rate of its cars made in China to 80 percent within the next two to three years from about 60 percent at present.

As a further measure, Dongfeng Peugeot Citroen said it will cut its inventories to less than US$2 billion yuan (US$240 million) this year.

The venture also said it aims to slash management costs by 250 million yuan (US$30 million) this year.

Eight percent of the venture's workforce will either be cut back or relocated, mainly from "non-production departments," the official said.

The venture currently has 6,400 employees.

"Cost-cutting has become a key battlefield for automakers in China due to fierce price wars and declining profit margins. In the past, they just expanded production and fought for market share with bumper profits," said Li Chunbo, an analyst with Citic Securities Co Ltd.

More automakers in China, especially those building passenger cars, will end the year in the red, Li said.

Forty-eight of the 128 automakers in China made losses during the first 11 months of last year, he said.

An official from Volkswagen's joint venture with First Automotive Works Corp said one of "our top priorities" is to cut costs.

Dongfeng Peugeot Citroen, established in 1992, was the third Sino-foreign car joint venture established in the country after Volkswagen's two earlier ventures.

The firm is producing Citroen's Fukang, Elysee, Picasso and Xsara models, as well as the Peugeot 307 notchback.

Last year, the company sold 11,000 Peugeot 307s, which was launched last April.

This year, the venture will produce a Peugeot 206 hatchback, keeping to its plan of launching new products annually from 2004 to 2009.

Amidst declining sales, Dongfeng and PSA Peugeot Citroen announced last year that they planned to invest 600 million euros (US$972 million) to double annual manufacturing capacity to 300,000 units by 2006.

"We will press ahead with this goal in the most economical fashion," the venture said.

Last year, one of the venture's executives said the firm will team up with French parent PSA Peugeot Citroen and a Chinese bank in a foray into the car financing business.

Sales of domestically-made vehicles, especially passenger cars, slowed sharply last year as a result of banks' controls on car loans, high oil prices and customers' reticence to buy due to frequent price cuts.

Domestic car producers also suffered from high raw material costs.

Sales of vehicles made in China hit 5.07 million units last year, up 15.5 percent from 2003.

However, the growth rate in sales of passenger cars sunk 15.2 percent last year from 75 percent in 2003.

(China Daily January 18, 2005)