Does Dongfeng Love Peugeot And Will General Motors Sulk?

It is being widely reported that PSA Peugeot-Citroen Group of France (PSA) is in talks with Dongfeng Motor of China to deepen their par...

It is being widely reported that PSA Peugeot-Citroen Group of France (PSA) is in talks with Dongfeng Motor of China to deepen their partnership, especially in the world’s largest car market. Speaking at the opening of the PSA’s fourth JV factory in China, although the latest one does not seem to involve Dongfeng, CEO Philippe Varin told reporters, “It is important to examine all cooperation options to go further than now.”

It is understood that PSA has mandated two separate banks to study a possible capital tie-up between the 2 companies. It is thought that there may be several options available but at the moment they are studying a compartmentalised approach, whereby a Dongfeng/PSA joint venture would focus on emerging markets where PSA would transfer assets in exchange for cash. Alternatively PSA is considering Dongfeng taking a direct stake in PSA via a capital hike; however, it is thought that this option may well annoy General Motors (GM) who are a 7% and second largest shareholder in PSA after the Peugeot family.

Earlier in the year, it had been reported that the Peugeot family, who currently own 25.5% of the shares, was willing to surrender control in PSA for the sake of making a deal happen. Whilst much has been made of GM’s relationship with PSA, when asked about the possible tie-up in New York last week, the Vice Chairman of General Motors, Steve Girsky, has publicly stated, "We're not PSA's only partner so I don't think it would complicate our situation any more than it would complicate some of their other partners."

Girsky said fixing GM's European operations is the priority and the alliance with PSA is meant to help. He further stated that GM and PSA are still working together to build two minivan-like vehicles on the same vehicle platforms, starting in 2016, but other unidentified products largely for the European markets are also being discussed. Incidentally, Girsky has been appointed by GM to stem 13 successive years of losses for GM in Europe.
PSA continues its China expansion
After the opening of the latest factory in Shenzhen, which is slated to build higher-end models such as the DS models, PSA will have a capacity in China of some 950 000 cars per annum, which is more than double the 442 000 cars it sold there in 2012.

Like so many other European and American car makers who are frantically trying to establish themselves in China, PSA has been having a bit of a torrid time in their home market. In fact, last week, the Association of European Carmakers reported a 4.9% drop in European car sales in September, with Peugeot's registrations down 18% as the company lost more ground to premium and Asian rivals.

It is against this backdrop that PSA is desperately trying to raise funds as they are expected to burn through some USD2 billion of cash this year in Europe where they have survived largely due to the French government help. Seeing as Dongfeng is described as a Chinese state-owned automotive company, it would appear that PSA like to have government involvement.


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