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

Joseph White

(Adds comments, details, background)

SHANGHAI, April 18 (Reuters) - PSA Group, 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

, Guangzhou and Baojun, jointly owned by

General Motors and SAIC.

The French carmaker builds Peugeots and Citroens in China

with 13.7 percent shareholder Dongfeng 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 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)