Peugeot News Update: Talks with Dongfeng

Peugeot Dongfeng GM Citroen

Peugeot news update: The France based car manufacturing company have been reviewing their alliance with other companies in light of financial problems.

There have been rumours recently of talks between Peugeot Citroen and Dongfeng of China. The latter will most likely be looking to purchase the merged company and develop the small car manufacturing system to offer a more comprehensive manufacturing service. The company have denied that this will be happening but since General Motors (GM) bought a 7% share in Peugeot Citroen there has been much debate about where to take the company.

“The French carmaker said that a review of a substantial joint-platform to make smaller cars with GM might cause it to lower its $1bn synergies target, although it insisted that the alliance was still in rude health otherwise.

Peugeot has been developing an alliance with GM since last year when the US carmaker took a 7 per cent stake, and has cited it as an important reason for its positive operating cash flow in the first half of the year.

However, the carmaker, severely affected by the worst European car market for two decades and bleeding cash, is in talks with Chinese carmaker Dongfeng with a view to a potential capital increase that could also involve the French state taking a stake.

GM looks on warily at the potential deal, but Jean-Baptiste de Chatillon, the PSA finance director, said on Wednesday that the discussions being held with other parties were not related to the review of the GM platform.

“The contribution of the alliance on the rebound plan in 2015 is unchanged,” he said. “It has nothing to do with something else.”

A joint platform was not seen as so beneficial to the US carmaker as to Peugeot, a person with knowledge of the alliance said.

The group reported a worse than expected 4 per cent fall in group revenues to €12.1bn in the third quarter, affected by the strength of the euro and declining market share in Europe.

Revenues at the automotive division of the group were down 6 per cent to €8bn, with volume contractions in Europe, Brazil and Russia only partly offset by growth in volumes in China.

Peugeot maintained that its plan to cut cash-burn to €1.5bn was still on track with a further “very significant reduction” of cash consumption expected next year.

Shares in the group were up by 3.3 per cent on Wednesday, although they are still 15 per cent lower this month amid fears that a large capital injection would dilute existing shareholders.

A funding injection by Dongfeng would allow PSA to invest in new products and to expand its footprint, reducing reliance on the European market, analysts say.

Peugeot, while doing well in China with its Dongfeng alliance, trails rivals such as Fiat in markets such as South America, and Renault-Nissan in tapping growth in southeast Asian markets.

The potential Dongfeng deal has been making waves in France, where the government fears the company coming under Chinese control. Arnaud Montebourg, the French industry minister, insists that PSA “will remain a French company”.
The results come as four of Peugeot’s six main unions representing almost 65 per cent of its workforce have backed plans to cut overtime pay and to freeze salaries, with the agreement being signed on Thursday.

The company will cut overtime pay by 20 per cent to 25 per cent and would freeze salaries next year at its French automotive operations, but it has agreed not to shut any additional French plants for three years and to boost capacity.

Peugeot accounts for 60 per cent of France’s car production and employs close to 100,000 people locally, in an industry that, directly or indirectly, accounts for about one-in-10 French jobs.”

This article was published originally on The FT.

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