April 18, 2017 / 12:57 PM / 4 months ago

Peugeot needs deeper cuts, SUVs to halt Chinese sales slide: CEO

Carlos Tavares, Chairman of the Managing Board of French carmaker PSA Group addresses the media during the 87th International Motor Show at Palexpo in Geneva, Switzerland March 7, 2017.Arnd Wiegmann

SHANGHAI (Reuters) - PSA Group (PEUP.PA), the maker of Peugeot, Citroen and DS cars, needs more drastic cost cuts and new SUVs to reverse a slump in sales in China, Chief Executive Carlos Tavares said on Tuesday.

The Paris-based group must find "a new business model" and bigger purchasing, logistics and manufacturing savings to offset falling prices, Tavares said at the Shanghai auto show.

His comments highlight the pressures felt by mid-market global carmakers as Chinese consumers turn to increasingly competitive offerings from domestic brands such as Geely (0175.HK), Guangzhou (601238.SS) and Baojun, jointly owned by General Motors (GM.N) and SAIC (600104.SS).

The French carmaker builds Peugeots and Citroens in China with 13.7 percent shareholder Dongfeng (0489.HK) and assembles its premium DS models with another partner, Changan Automobile.

Shares in PSA, which agreed last month to acquire rival Opel from GM, were down 2 percent at 17.22 euros at 1200 GMT, while the Stoxx Europe 600 autos index <0#.SXAP> was down 1.1 percent.

Competition has intensified in China as rival western brands and their local manufacturing partners slash prices, Tavares told reporters. "The joint ventures panicked."

The Chinese auto market expanded 15 percent overall in 2016, and growth is expected to be slower but positive this year.

But PSA's sales fell 16 percent in the region last year and the decline has accelerated since. Deliveries were down by almost half in the first two months of 2017, when the Citroen brand achieved little more than one-third of its tally for the same period last year.

Demand has also shifted from the saloons and hatchbacks that account for most of PSA's line-up to higher-riding models and Citroen will soon begin Chinese sales of the new C5 Aircross compact SUV, unveiled at the Shanghai show.

"More SUVs in the Chinese market is a must," Tavares said, adding that the group needs "much more cost reductions".

But Tavares declined to give a progress report on PSA's earlier pledge to reduce China production costs by 10 percent annually. The cuts were "hard to achieve", he said.

Reporting by Joseph White; Writing by Laurence Frost; Editing by David Evans, Greg Mahlich

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