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Peugeot: an alliance, a chip crisis and a pandemic mark its performance

Peugeot was causing a sensation in Mexico in the early 2000s. It had positioned itself as a youthful and aspirational brand, a breath of fresh air for a market that for five decades had been dominated by just five vehicle brands.

It arrived in the country in 1997 thanks to the entry into force of the Free Trade Agreement between Mexico and Chile, where it had an assembly plant. It started with two models, the 406 and 305, and then introduced the 206, 406, 307 and 407. With this range the firm achieved a sales volume of 6,000 units in 2001, which shot up to 16,000 in 2006, according to data of the company.

But soon the sales success exceeded the after-sales capacity and the reputation of the brand was quickly damaged. The vehicles, which weren’t tropicalized for Mexican bumps and potholes, broke down more than normal. Repairs were expensive and often took several weeks, even months, because the auto parts were imported from Europe.

This perception of poor after-sales service quickly eroded Peugeot’s sales in the country, which went from 16,000 units in 2006 to 6,941 in 2014, according to data from the Mexican Association of Automotive Distributors (AMDA). However, the owner has made more progress than seemed likely at the time. Today it has become an alternative to the entry models of premium brands.

Peugeot doubled its share of the Mexican market in the last five years, going from 0.5% in 2015 to 1% in 2020. This positive inertia continued during the first quarter of the year, which closed with 1.2% of total vehicle sales.

But maintaining this hot streak is a challenge amid a merger with FCA, the uncertainty that has generated the global shortage of semiconductors and the ravages of the pandemic. Gerardo Carmona, who this year assumed the general direction of the brand in the country, after spending almost four years as Peugeot’s marketing director, talks about these challenges.

E: Peugeot was one of the few brands that gained market share in 2020. Are you satisfied with this result?

GC: Being a limited volume brand, we have achieved 1.2% market share. Four years ago we had 0.5%. We have grown strong, but we continue to have limited participation. The brand continues to have a relatively low level of recognition. We are making a lot of effort: we finally have a very attractive and modern product range, and a more premium brand image, but there are still many potential customers who are hesitant to change their brand of a lifetime even though they like a Peugeot car. . That is why we are promoting test drives a lot. Our conversion rate between test and brand conversion is very high. In the 2008 model, for example, it is around 65%. That is, two out of three people who test the car, buy it. Before 2017, it was 25%.

E: Years ago, Peugeot faced problems related to the quality of the vehicles, what has the brand done to change this perception?

GC: We have worked a lot on the set-up: the programming of the gearbox, the suspension, the shock absorbers. We use mounts so that the engine resists much more vibration, so that after 200 kilometers the engine does not pass excessive vibrations to the cabin. It is very easy to order it from the plant in Europe and sell it, but we have given ourselves the task of doing many tests before launching it in Mexico. We shoot them up to 50,000 kilometers and up to 4,000 meters of altitude, we give all this feedback to France to recalibrate the cars before they go into production.

E: Does this explain the growth that the brand has had in the midst of a loss of 30% of the market volume? Because the only way to grow in a falling market is to win customers to other brands.

GC: We have been conquering customers who previously did not look at Peugeot. We actually have few first-time customers, that is, who buy their first car with us. We may have a little more in our utility vehicles, but in passenger vehicles, most of the new customers come from other brands. We also have more and more customers who buy back the brand thanks to the fact that we have worked hard to give our current customers confidence, with more competitive maintenance prices and better after-sales service.

I: What brands do these customers come from? Who are Peugeot’s current competitors?

GC: Both in the volume and premium segment. We have a very particular formula, because the price is close to traditional or general brands, but the type of product is more premium. Lately we are fulfilling this proposal at Peugeot with each car we launch, the first was the 3008, then the 2008 and now the 208. If you buy premium vehicles in similar segments, our prices are lower, but the technology, the engine and the equipment is equal to or greater. And it is that, in the case of premiums, people pay a lot for the brand. Our promise is: if you want a car that delivers everything that a premium vehicle gives you, but you don’t want to pay the brand price, Peugeot is a good alternative.

E: We come from a complicated 2020, marked by a pandemic that paralyzed economic and social activity around the world. How was the first semester of 2021?

GC: It has been crisis after crisis. First, a shortage of chips, which was exacerbated by a fire at a semiconductor plant in Japan. Unfortunately, there are many production chains based on these technologies. All brands, to a greater or lesser extent, are impacted by the shortage of semiconductors. The problem we have is that our cars have a lot of technology and require a lot of chips. We in Mexico are trying to minimize the impact. It is not that our inventory of vehicles is going to zero, but we are constantly measuring what we can bring to Mexico, amid the global production cuts we have.

E: How many chips does a Peugeot have?

GC: Many. I don’t know the exact number, but today all vehicles have microprocessors. If you have a vehicle with manual functions, it clearly does not have the same impact as one that has many automated systems. For example, the infotainment screen needs microprocessors because it has a small computer inside, also the digital cockpit (instrument panel), where there are several screens and several projectors. All semi-autonomous driving systems also work with microprocessors. In our case, the more equipped versions are full of technology and clearly have this affectation. Since March we have had a much lower level of sale of the 2008 model, which is one of our pillars, due to less availability due to the shortage of chips.

E: How can you resist?

GC: We are taking great care of the resale value of the cars. We try to put a fair price on each car and we believe that it should not be lowered in times of crisis, because then what happens? The crisis is over and you have a devalued range. We do not want the demand to come because we are giving things away, but because the car is very good and has a fair price. We want availability to recover as soon as possible, our models continue to be very well positioned and people have an interest in buying them.

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