Peugeot's Sanand unit headed for a dead end

Gujarat's emerging automobile hub, Sanand, might see the exit of French carmaker PSA Peugeot Citroen. The company's dream of being a neighbour to Tata and Ford at Sanand is unlikely to be realised, as the state support agreement (SSA) signed with the Gujarat government does not hold good any longer. Even the state government is treating the project as dead. The European carmaker has already lost 200 acres of the total land allotted to it. The Sanand plant would have marked the auto giant's re-entry into India, after it exited the country in 1997.

"The company has missed all the deadlines to make payment for the land allotted to it in Sanand, and, therefore, there is no legal validity of the SSA (signed in September 2011) anymore. The state government is actively looking for buyers for the remaining land after it sold around 200 acres to small engineering companies a few months back," said two persons in the know.

The SSA contained guidelines on when the company was to make payments (in installments) to the state government for the 584 acres allotted to it at Sanand. "As the company did not make a single payment, the land was never legally transferred to Peugeot," said the source. The company has stopped all correspondence with the state government as well, he added.

After announcing plans to come up with a plant in Sanand, Peugeot had even moved its corporate office in India from Mumbai to Ahmedabad in February 2012, had roped in a team of 30-40 people, and planned to take the head-count up to 150 people. A recent visit to the Peugeot office in the city showed there were only two or three people present in the premises, who did not wish to comment on the status of the project in Sanand.

An e-mail questionnaire to the company has remained unacknowledged since last Wednesday. Repeated calls to the Peugeot India spokesperson did not elicit any response either.

The state government has already sold off 200 acres from the allotted land in small parcels of 20-40 acres to small and medium enterprises seeking to buy land in the area.

According to the SSA, Peugeot had plans to invest around Rs 4,000 crore to set up a 165,000 vehicles per annum plant in Sanand, its 17 globally. It planned to make Sanand its manufacturing hub for India as well as the neighbouring countries of southeast Asia, and was to manufacture the flagship Peugeot 503 at Sanand. The facility was scheduled to be operational by 2014.

Peugeot had even conducted a 'ground breaking ceremony' at the site in November 2011.

However, the slowdown in Europe hit the company's sales, which, in turn, its profitability in a big way, forcing it to 're-schedule' its India plans. Due to troubles in Europe, the company had announced a programme to cut costs by around euro 1 billion last year. According to recent reports, the company posted a net loss of euro 5 billion in 2012. Group revenues were down by 5.2 per cent to euro 58.4 billion in 2012 over the previous year, while income from new car sales fell 12.4 per cent to euro 27.8 billion.