PSA Peugeot Citroen SA, the largest car maker in France, is tying up with Canada-based Magna International Inc. to buy components from India for its global operations, the first time the two are collaborating for purchases.
The PSA Group plans to source €3.3 billion (Rs19,008 crore) worth of auto parts from low-cost countries such as India and China by 2010, as it tries to cut costs and improve operating margins.
The company’s operating margin in the first half of the current year is less than 2% compared with almost 8% for Japanese car maker Nissan Motor Co. Ltd.
Currently, PSA sources around €230 million worth of parts from low-cost countries other than India.
“Magna identifies sourcing opportunities for the PSA Group in India and will provide support,” said Prasen Agali, executive director of Magna International’s Indian unit. “Some sourcing out of India has started in the middle of this year, but it will pick up in a big way in 2008,” he added.
Agali didn’t quantify how much would be sourced from India.
The services provided by Magna to PSA would typically include identifying vendors, checking their past performance in terms of quality standards, cost levels and delivery times, and setting up a system of placing orders.
Agali declined to reveal further details, although he said that this tie-up is confined to India.
International automobile manufacturers such as General Motor Corp. and Volkswagen AG are increasing their sourcing of auto components from low-cost countries in general and India in particular, as they battle higher labour and health-care costs in their home countries.
General Motors, for instance, has said it wants to buy up to $1 billion (Rs3,934 crore) worth of auto parts every year from India by the turn of the decade.
Exports of auto components from India increased 33% to $2.8 billion in 2006-07, from $2.1 billion a year ago, according to the Automotive Component Manufacturers Association of India, an industry body.
Magna International, which clocked $24 billion in revenues last year, is targeting to source $120 million worth of auto parts from smaller Indian vendors by 2010, up from about $20 million now.
The PSA Group stopped manufacturing cars in India after a failed alliance with Premier Automobiles Ltd in the late 1990s, although a presentation on its website says it is reviewing its India strategy.
Ammar Master in Mumbai contributed to this story.