Leaving India: The Peugeot Story|Business Strategy|Case Study|Case Studies

Leaving India: The Peugeot Story

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Case Details:

Case Code : BSTR023
Case Length : 9 Pages
Period : 1994 -1997
Organization : Peugeot Premier Automobiles Ltd
Pub Date : 2002
Teaching Note : Available
Countries : India
Industry : Automobile & Automotive

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Starting Problems

Despite the impressive 10,000 unit sales in its first year, Peugeot recorded a loss of Rs 920 million for the year 1995-96 (12 months). The company's problems could by and large be traced back to PAL's association with Fiat.

After having partnered Fiat in India for a significant time, PAL entered into a new technical agreement to assemble the Fiat Uno at its Kurla plant and the technical agreement was changed into a joint venture in 1997. The June 1996 production slowdown at the Kalyan plant had its roots in the problems at PAL's Kurla plant where the workers had gone on strike over issues related to wages, incentives and VRS. PAL was manufacturing the Premier Padmini and the Premier 118NE at the Kurla plant (later the Uno and Siena models as well) and the Peugeot 309 and the 118NE at the Kalyan plant. The Kurla and Kalyan plants were dependent on each other as the Kurla unit was the sole supplier of components such as gearboxes and rear axles to the Kalyan plant...

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The Final Countdown

PAL was reportedly unhappy with Peugeot over the indigenisation of the 309. The 309 was only 24% indigenised. This made the spare parts very expensive and the company was unable to reduce the price of the car.

PAL claimed that Peugeot was just not interested in increasing the indigenization level of the vehicle. There were reports of disagreements over the high price of the CKD from Peugeot as well. Due to the 1996 labor problems, the company had to bear heavy inventory carrying costs. To compensate for this, PAL reportedly asked Peugeot to cut down the CKD prices and release funds as loan to the joint venture.

PAL sources said that Peugeot could have advanced loans to the company by treating CKD and other equipment with the venture as security for the loan. PAL even requested Peugeot to use its name to raise bank loans abroad for the joint venture, where the cost of funds was much lower than in India...

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