French car maker PSA Peugeot Citroen has vowed to push ahead with expansion plans for its joint venture in China, although it will continue to face tough competition this year.

PSA Peugeot Citroen will introduce three new models into the venture, jointly held by China's Dongfeng Motor Corp, by 2006 as part of efforts to boost sales and market share, said Jean-Martin Folz, chief executive officer of the French group.

The venture in Wuhan, Hubei Province, will launch a compact car, the Peugeot 206, at the end of this year and two Citroen models next year, Folz said.

"We will not change our plans for the venture, despite great difficulties. We still hope to play an important role in China's car market," he said in an interview with China Daily over the weekend.

At the beginning of 2004, PSA Peugeot Citroen and Dongfeng announced a plan to spend 600 million euros (US$800 million) to double the annual production capacity of the venture to 300,000 cars in 2006.

The venture, or Dongfeng Peugeot Citroen, reported more than 500 million yuan (US$60 million) in losses last year due to sluggish sales and high costs.

Sales of the venture dropped by 13.8 per cent year-on-year 89,129 cars in 2004.

The main external reasons for the venture's difficulties included sharp deceleration of China's car market, sliding car prices and the strong euro, according to Folz.

"Internally, the venture failed to do enough to upgrade its Citroen products last year as it focused on the launch and production of Peugeot cars," he said.

The venture started to produce the Peugeot 307 notchback last April and sold 12,000 units of the model in 2004.

The venture also makes Citroen's Fukang, Elysee, Xsara and Picasso.

However, Folz indicated that Dongfeng Peugeot Citroen's market share is rebounding as it sold almost 20,000 cars and accounted for 5.6 per cent of total sales of cars made in China during the first two months of this year, up from less than 4 per cent last year.

In January, the venture announced that it aims to sell 115,000 cars this year and be back in the black.

"The venture's sales are expected to improve this year according to its performance in January and February, but the more important thing for it is to cut costs to return to profitability this year," said Jia Xinguang, analyst with China Automotive Industry Consulting and Development Corp.

To cut costs from the strong euro, Folz said Dongfeng Peugeot Citroen will speed up the process to enhance local content of its cars.

In January it announced plans to cut production costs by 2 billion yuan (US$240 million) this year.

It also aims to lower its inventories to less than 2 billion yuan (US$240 million) this year.

Asked to comment on China's car market, Folz said: "China is a young car market in which vehement ups and downs are inevitable. But it will increase at a double-digit rate annually in the long term due to the nation's steady economic growth.

"We need to study carefully what kinds of products should be launched in China as most customers there are first-time car buyers," he added.

Sales of cars made in China grew by 15 per cent last year to 2.33 million units last year.

The growth was down from more than 70 per cent in 2003.

(China Daily March 22, 2005)