The long farewell: Peugeot' departure from the U.S. market

Business Horizons, May-June, 1995 by Jean-Loup Archawski, Francis W. Wolek

The Peugeot is a French car that "reverently coddles" its owner in a feeling of secure comfort. At its peak in the United States, Peugeot annually sold 20,000 automobiles and gained a following among individuals willing to give the car what one owner called "lots of loving and acceptance of its aggravations." Nevertheless, despite such loyalty, annual sales sank to fewer than 5,000 and the company ultimately abandoned the U.S. market.

The story is an old one that is forever new in its variations. American auto lovers liked the car and wanted to be wooed. The French suitor, however, simply pitched them the same line as in France and gave all its attention to the allures of the American automobile industry. Mass production, full lines, and productivity advances through engineering were all the rage and Peugeot fell for it all.

Not surprisingly, many American customers still yearn for that feeling, and Peugeot recognizes that no company worth its salt can make it if it fails in the world's largest market. Jilted customers will give the company another chance. Once it might have taken only a small touch here and a caring courtesy there. Now, like all wooers of customer loyalty, Peugeot has to prove a commitment to a lasting relationship with the American customer.

A central message of modern times is that no nation or people exists in isolation. Prominent or obscure, history teaches that we are all interdependent. History has also taught us that large corporations are major participants in the networks that link people around the world. Corporate decisions strongly affect the quality of our shared environments, the interaction of people across international boundaries, and beliefs about the reliability and behavior of nations as partners.

In short, we must understand the behavior of corporations to maximize the growing benefits of our global relationships. When a highly visible corporation withdraws from the growing web of global interdependency, as Peugeot recently did from the U.S. market, we have an important opportunity for learning.

PEUGEOT IN AMERICA

Peugeot sold automobiles in the United States from 1958 until its formal withdrawal in the summer of 1991. Starting in the late 1970s, sales grew and reached a peak in the mid-1980s, when the sharp increase in oil prices sparked consumer interest in Peugeot's diesel-powered autos (see the Figure).

Typically, Peugeots appealed to middle- and upper-class consumers who appreciated European engineering and handling. The Peugeot 505 SW8 Turbo, for example, was attractive for its eight-passenger capacity, peppy engine, and Peugeot's traditional comfort. One owner expressed his regard for Peugeot autos by stating that he felt "at one with the car; it's almost an extension of myself."

The positive history of Peugeot in the U.S. and Europe eliminates one explanation for its eventual withdrawal: This was not a weak company. During much of the 1970s, for example, Peugeot was the largest automobile company in Europe.

Some experts on international markets claim that how a firm organizes its entry into a foreign market strongly influences its performance in that market. They contrast a strategic approach with reactive management that takes whatever action is necessary to obtain immediate sales. A strategic approach to a market is characterized by systematic selection of target markets, commitment of resources for a permanent position, development of products specifically designed for the targeted market, control of channels of distribution, and aggressive use of advertising and promotion. To what extent did Peugeot's approach to the U.S. market show such attributes?

Instead of being strategically driven, the company's entry into the American market was a result of pressure from the French government. The government wanted Peugeot to export to a market that would bring hard currency back to France and even insisted that Peugeot distribute its cars through the dealer system of Renault, a government-owned company. This pressure was welcomed by some executives who were building a network for global exports, starting with France's former colonies. But although the vision of building an automotive power of global dimensions had been important from the beginning for Peugeot, such a vision was evidently not behind opening the American entry. Indeed, Maurice Jordan, the operating head of Peugeot until 1965, was described as: ... very conservative about investment and expansion, [and he believed] exports unprofitable for the firm. As he viewed the matter, their value was primarily to keep the home factories busy and bring greater economies of scale .... [R]ather than concentrating on a few [countries], as VW did in Brazil and the United States, Jordan wanted to spend as little as possible on exports. (Laux 1992)

At the beginning, Peugeot had no long-range strategy for the American market and no resources to do more than distribute the cars its factory was already producing. At best, the company was betting that American sales would provide the resources and exposure needed for a strategy to emerge out of involvement with American allies and customers.