PLANT

Chinese automaker Dongfeng, France to invest $1.1B in Peugeot

Struggling automaker intends to boost sales in fast-growing Chinese market

February 19, 2014   by ASSOCIATED PRESS

BEIJING — Loss-making French carmaker PSA Peugeot Citroen is getting a 3 billion euro lifeline backed by Chinese investors and the French government in a deal that will see the company’s founding family hand over control after more than two centuries at the helm.

Chinese automaker Dongfeng and the French government are each investing 800 million euros ($1.1 billion) in Peugeot, throwing a financial lifeline to the struggling French auto brand and possibly expanding its global presence.

Plans call for Dongfeng Motor Co., the French government and the Peugeot family each to own equal shares in PSA Peugeot Citroen and to have equal voting rights, Dongfeng said in a statement.

The deal reflects an increasingly popular strategy among Chinese companies, which are buying stakes in established foreign brands to improve their competitive edge in their fast-growing home market.

China’s auto market is the world’s biggest by number of vehicles sold but is crowded and competitive, with every global brand and two dozen indigenous automakers jostling for sales.

Dongfeng said the French government is expected to buy the same number of shares as it on the same terms.

The Dongfeng and French government investments plus money raised from existing shareholders would inject 3 billion euros ($4.1 billion) into Peugeot. The Chinese company said shareholders also will receive entitlements to buy three new shares for each 10 they own, which might bring in more cash.

Dongfeng said it and Peugeot will expand co-operation in technology, research and development, manufacturing and overseas distribution. It said the two sides will sign a formal agreement in March and continue work on their strategic partnership.

The brief announcement gave no additional details, including about how the owners will manage a potentially unwieldy structure with ties to both the French and Chinese governments.

While it is clear Peugeot gains much-needed capital, “from the Dongfeng side, the objective still is a little bit vague,” said industry analyst Yale Zhang of AutoForesight in Shanghai. “We don’t know if there are clear terms about transfer of technology for platforms or power trains. They still need to clarify their objectives.”

Peugeot is France’s biggest automaker and Europe’s second-biggest after Volkswagen AG but has little presence in the US or East Asia. It has developed models for China, including its 408 sedan, and has a joint venture with Dongfeng, but barely ranks among the country’s top 10 brands in sales.

Peugeot also released its latest earnings, posting a net loss of about 2.3 billion euros in 2013, following a record 5 billion euro loss in 2012. Earnings were hammered by hundreds of millions of euros in new restructuring costs and impairment charges to account for the diminishing value of Peugeot Citroen’s assets.

The automotive division posted a 4.8% drop in revenue to 36.5 billion euros, as the sales of new Peugeot and Citroen badged cars and light trucks slumped nearly 5% to just over 2.8 million.

Peugeot expects the European auto market to expand about 2% this year and about 10 per cent in China.

Sales by the Dongfeng Peugeot Citroen joint venture rose 25% last year to 554,000 vehicles, for a 3.5% share of the market, according to LMC Automotive Ltd., a research firm. By comparison, VW and its main Chinese partner had a 9.9% market share last year and GM and its main partner had 9.8%.


Print this page

Related Stories