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PSA gets Chinese life-line

French connection: The Citroen C-Elysee is one of a number of China-only models sold by PSA in the world’s biggest motor market.

China’s Dongfeng and French government chip in to save PSA Peugeot Citroen

20 Feb 2014

STRUGGLING French car-maker PSA Peugeot Citroen has been thrown a massive financial life-line by its Chinese partner Dongfeng Motor and the French government.

In a €3 billion ($A4.6 billion) bailout, Wuhan-based Dongfeng and the French government will both kick in €800 million ($A1.2b) for a 14 per cent share of the European motor company, while the remaining €1.4 billion ($A2.1b) will come from existing PSA investors.

The Peugeot family’s share will be reduced from 25.5 per cent to 14 per cent – matching Dongfeng and the French government’s share – which reportedly will be the first time the family has lost full control of the company since it was founded by Armand Peugeot 118 years ago.

PSA’s rescue comes after months of talks with Dongfeng and will be formalised in late March, just days before incoming PSA CEO Carlos Tavares takes over from Philippe Varin on March 31.

Mr Tavares has worked with Dongfeng in the past, negotiating a joint venture between the Chinese company and his former employer Renault when he was Carlos Ghosn’s deputy.

PSA also announced its sales and financial results for last year, confirming a drop in global sales last year of 2.4 per cent to €54.1 billion ($A83b), but net losses of €2.3 billion ($A3.5b) last year were an improvement over 2012 when the company lost €5 billion ($A7.6).

The cash injection will help PSA recover and refocus its efforts on new product and sales growth, but the company is not expecting to make a profit until 2016, a year after it originally planned to be in the black.

PSA confirmed in a statement that the deal with Dongfeng will propel a renewed push for the group in South-East Asia as well as China where it hopes to build on the sales success it had last year when it sold 550,000 Peugeot and Citroen branded cars there.

While that is a strong sales result for PSA, it pales in comparison with Dongfeng’s haul in China, which reached 3.1 million units in 2012 for a 12 per cent market share, making it the third largest car-maker in the country.

Most of those vehicles are made in partnership with foreign car-makers, including Nissan, Honda and Kia, as well as Peugeot and Citroen.

As a part of the agreement, PSA and Dongfeng will build a joint research and development centre dedicated to the development of products and technologies for emerging markets such as Latin America, and includes measures relating to intellectual property that will allow PSA to pursue joint ventures with other car-makers.

Two to three new models will be launched globally each year across all three brands, with projected sales volumes tripling to 1.5 million units a year by the early 2020s.

It’s not the first time a European marque has been bailed out by a Chinese car-maker, with Geely buying Swedish brand Volvo from the Ford Motor Company for $US1.8 billion ($A2b) in 2010.

Nor is it the first time a French company has relied on aid from the French government for its survival. In the 1980s, the government acquired the bankrupt Renault to save it. Renault is now again in private hands, in partnership with Nissan.

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