Sino-French Relations Grow Ever Stronger
It seems like French automakers are depending on their relationships with the Chinese to see them through this new era in the automotive industry, in which Asia is the market leader and where overflowing coffers can invest in research, production infrastructure and expansion.
After months of speculation (which we reported in Does Dongfeng Love Peugeot And Will General Motors Sulk? And Dongfeng Considers 30% Stake In PSA Peugeot Citroen), PSA Peugeot Citroen, Dongfeng and the French government have reach a deal worth USD5.5 billion. This marks the end of the Peugeot dynasty, the family that had retained power over the oldest French auto company since 1889. But having suffered greatly in the European market slump, the way forward was either letting go of power or going bankrupt.
Dongfeng and the French government will each invest about USD1.1 billion each (the remainder will come from existing investors) in return for 14% stakes each, diluting the Peugeot family’s stake to an equal 14%. While the agreement is still subject to stakeholders’ vote, it would seem like they will have no choice but to agree to the new structure considering that the French automaker reported a net loss of more than USD10 billion in the last two years. And with China being where the money is and a joint-venture with a local state-owned company is the only way in…well, it is clear that Peugeot is doing what is necessary to survive for the long-term.
What will this partnership entail? Well, with three equal partners, it may be harder to reach decisions unless they are all on the same wavelength. Already there are disagreements as to the appointment of a new CEO. The French government is rooting for Louis Gallois, a senior civil servant; the Chinese wants Patricia Barbizet, a French businesswoman and independent Peugeot director.
Analysts believe that Dongfeng’s motivation for entering into this deal is to assimilate Peugeot’s technology, and delve deeper into research and development together. Would the French be so forthcoming in sharing their technology? This remains to be seen when they sign the legally binding framework agreement at the end of this month.
After recovering its footing with this deal, Peugeot received more good news last week when their 308 model was selected as the 2014 Car of the Year, on the eve of the Geneva International Motor Show, by a panel of judges made up of European automotive journalists. The 308 beat electric vehicles BMW i3 and Tesla Model S, which placed second and third. This bit of publicity and endorsement will help accelerate more sales for the 308 which had already received 55 000 orders since the end of last year.
This new Sino-French tie-up comes after another one involving Renault. In a relatively humble USD1.3 billion deal with Dongfeng, Renault is aiming for an initial production of 150 000 units annually and a targeted 3% of the market share in the China, with plans to escalate that number to 750 000 units per year (read also An Automotive Love Triangle).