Peugeot Reconsiders Alliance with GM as it Looks to China for Help

France’s largest carmaker PSA Peugeot Citroen has said that its alliance with General Motors may be scaled back, sparking speculation that it is doing so in preparation for a deeper partnership with China’s Dongfeng Motor.

The carmaker, which recently posted a 3.7 percent quarterly revenue decline, said plans for a joint small-car program with GM are “under review”, despite having announced earlier this month joint production of B-segment MPVs in Spain.

“The project of development of a new joint platform for B segment models with GM is under review as well as the relevant terms of the development agreement. As a result, the announced mid-term synergies ($1 billion for PSA) may be readjusted downwards. New initiatives are under consideration,” Peugeot said in a statement.

Peugeot is currently in tie-up talks with its Chinese partner Dongfeng Motor. Dongfeng and the French have stated that they are considering taking equal stakes in Peugeot of about 20 percent in a capital increase that would raise at least €3 billion ($4.13 billion). While the GM alliance is focused on cost reductions in the shrinking European market, a partnership with Dongfeng would help Peugeot expand in China and boost its profits.

Peugeot and Dongfeng currently operate three factories together in China, with annual production capacity expected to rise by two-thirds to 750,000 vehicles until the end of 2015. Peugeot’s sales in the first nine months of this year in China rose 29 percent to 403,000 vehicles. Peugeot has a second joint venture in the country, Changan PSA Automobile, and opened a fourth factory last month.

Should PSA Peugeot Citroen pursue a deeper partnership with Dongfeng, it would risk the GM alliance, since GM’s Chinese partner is SAIC Motor, a rival for Dongfeng. If that happens, GM may pull out of the alliance with PSA and sell its 7 percent stake.

By Dan Mihalascu

Story References: Reuters & Bloomberg

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China's Dongfeng Reportedly Planning to Buy a Third of PSA Peugeot-Citroen

Volvo seems to be doing fine under Chinese ownership, even though most were understandably skeptical, immediately after hearing about that controversial deal going down.

We’re bringing this up now, because another traditional European manufacturer, PSA Peugeot-Citroen, is having serious financial trouble and according to a recent report, China-based automaker Dongfeng is looking to grab a third of the company’s shares.

Now going through its worst period of the last two decades, PSA “is examining new industrial and commercial development projects with different partners, including the financial implications that would accompany them,” said a spokesman, but concluding that “None of these projects has reached maturity at this stage.”

The Bloomberg source article reads that the Chinese would be willing to offer $1.63- (€1.2-) billion for 30 percent of the company, and while we can’t say for sure that it’s the exact amount they would end up paying, the link between the two companies is there, with official statements of interest from both sides.

PSA’s CEO, Philippe Varin did speak about this last month, saying that they did carry out preliminary talks, and their partnership would first be an industrial one, and only after that stage is complete would they talk about finances.

Dongfeng has been making Peugeot-branded cars with old PSA bits in China since 2004, so we could assume that that was part of the mentioned industrial partnership - the two companies are linked, so this report seems to be of the more plausible kind. We will follow it up when new information arises.

Note: The model pictured is the 2006 Citroen C2 built by the Dongfeng-PSA joint venture in China – and yes, it is clearly a Peugeot 2006 underneath.

By Andrei Nedelea

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