More customer choice and greater market diversity is always welcome and the announcement by PSA that Citroën will return to South Africa has been encouraging.
The French brand has a legacy of innovation and outrageous styling, which appeals to those who wish to project some individuality in their motoring life – even at a modest vehicle price point.
But why is Citroën returning to the South African market? The local economy is unquestionably in a worse state that when it left in late 2016, so what is the Citroën business case for a return?
1. Understanding Brexit role in all of this
The issue around Brexit has specific resonance to the South African vehicle market, especially with respect to passenger cars. Both the local and British markets are right-hand drive, yet South Africa’s new car sales are only a fifth of the United Kingdom’s.
That means any issue around demand or trade tariffs in the UK, has an influence on our local market dynamics too. If trade negotiations around automotive imports, parts supply chain or production do go awry between Europe and the U.K., there will be consequences for South Africa.
Manufacturers and brands will have to find alternative markets for their overflow right-hand drive cars, which will suddenly position South Africa as an alternative for vehicles which were originally planned for the British market.
Reviving Citroën’s South African operations might be a contingency to cater for that eventuality, on behalf of the PSA group.
2. Price stability and the Namibian connection
Citroën has great city and compact cars. The design value of vehicles such as the second-generation C1 compares very favourably against established South African favourites such as Vivo and Korean cars city cars of similar size.
Curiously, the French brand will not field C1 in its initial local product line-up. Opting for a range starting with the Polo-rivalling C3 instead. A traditional problem for Citroën has always price sensitivity.
Affordable cars trade in a very narrow pricing bandwidth and any sudden increase, even only by a few thousand Rands, can make a compelling car unattractively priced. But Citroën could finally have a solution to this price volatility.
As an importer it has established a small assembly facility in the Namibian industrial port of Walvis Bay. PSA invested R50m, with Namibian authorities zoning industrial land for the development. The aim is to produce 5000 cars through the facility by 2020.
Part of that volume could possibly include new Citroën product. Assembling a vehicle in Namibia, and then trading it within SADC, could offer PSA a reasonable advantage regarding import taxes. The taxation on automotive parts for assembly, is much lower than on a complete vehicle unit.
Within the SADC trade region, PSA’s Walvis Bay facility is a contentious issue. South Africa’s anchor motor manufacturers have questioned if relevant tariff protection is being enacted against vehicles assembled in Namibia, for market delivery in Southern African. Despite this, PSA remains unwavering in its Namibian assembly strategy.
3. The appeal of design
Design remains the great product differentiator and Citroën has always built compact vehicles of great distinction. In an economy where buyers are being forced to buy-down, Citroën’s quirkiness could offer some appeal amongst a deep pool of rivals.
And the risks?
There is possible cannibalisation between Citroën and Peugeot’s products, which share a portfolio of mostly twin-platform vehicles.