Peugeot plans cautious return to manufacturing in India

By Laurence Frost and Gilles Guillaume

PARIS (Reuters) - PSA Group will return to the fast-growing Indian market by 2020, the French carmaker said on Wednesday, unveiling a modest production deal with New Delhi-based CK Birla Group.

PSA, which halted its last Indian production in 1997, will invest 100 million euros ($107 million) with Birla-owned Hindustan Motors to build cars in Tamil Nadu.

A second joint venture with AVTEC, another Birla company, will produce engines and transmissions for PSA and potentially for other manufacturers, the groups said in a statement.

The plans represent a "major step in PSA Group's worldwide profitable growth", Chief Executive Carlos Tavares said. The Paris-based manufacturer is pushing an international expansion to reduce its dependence on European sales.

India's fast-growing market, which expanded 7 percent to 2.96 million cars last year, has proved tough to crack for many foreign carmakers. An earlier attempt by the Peugeot brand ended with the collapse of its local joint venture in the late 1990s.

PSA said its return to India was deliberately more incremental than a 650 million euro plant investment it had announced in 2011 with Gujarat state, then scrapped the following year amid mounting financial difficulties.

PSA will begin producing 10,000-15,000 vehicles annually, Tavares said, creating 1,500 jobs at a Hindustan Motors plant in Chennai now assembling SUVs for Mitsubishi. The new offering may be supplemented with cars built from imported kits, while local output rises gradually to an expected 100,000 vehicles.

Suzuki's low-cost Maruti brand now dominates in India with a 47 percent market share after progressively dethroning the Ambassador - built by Hindustan Motors between 1958 and 2014, initially based on the 1956 Morris Oxford.

French rival Renault has also made inroads lately with the frugal Duster SUV and its smaller Kwid sibling.

No decision has been taken on product strategy or even which PSA car brand to use, the companies said. The French group will fund about 65 million euros of the 100 million euro investment, with CK Birla contributing the remainder and the existing plant.

PSA signed the production deals with the Indian group, which has annual sales of around $1.6 billion, following talks with other potential partners.

According to local press reports, those included Jaguar Land Rover parent Tata Motors as well as former Renault ally Mahindra & Mahindra.

($1 = 0.9329 euros)

(Additional reporting by Aditi Shah in New Delhi; Editing by Greg Mahlich and Elaine Hardcastle)