Dongfeng mulls 30 pct stake in PSA Peugeot

An employee at a workshop of Dongfeng Peugeot Citroen Automobile Co Ltd in Wuhan, Hubei province. Starting in May, China became PSA's largest market globally. Shepherd Zhou / For China Daily

Dongfeng Motor Corp - China's second-largest automaker - may become PSA Peugeot Citroen's top shareholder if Dongfeng's plans to buy a 30 percent stake in the French company via a 10 billion yuan ($1.63 billion) direct investment come to fruition.

China Business News, reported on Tuesday that insiders from Dongfeng had confirmed that the company was in talks with the struggling French automaker to acquire a 30 percent stake.

The report quoted an anonymous insider as saying that the discussion was still in an initial stage, with many uncertainties in the future.

Zhou Mi, a spokesman for Dongfeng, declined to comment on Tuesday, while an official from PSA Peugeot Citroen China's public relations department told China Daily that they are still waiting for feedback from headquarters.

"This is a good opportunity and the right time for Chinese automakers to invest in their counterparts in Europe," said Zhong Shi, an independent auto analyst based in Beijing. "The price tag of ailing PSA won't be too high due to the stagnant economy in Europe."

Affected by the eurozone debt crisis, PSA - the second-biggest European automaker - reported a net loss of 5 billion euros ($6.78 billion) in 2012, while its global sales dropped 17.5 percent in the past three years.

After an operating loss of 1.5 billion euros in its car-making division in 2012 and plans to close a plant in France in 2014 with an 1,200-employee layoff, the company may be considering selling the stake to support its depleted financial status.

"Why can't Dongfeng purchase the stake in PSA, after we saw Geely's successful acquisition of Volvo in 2010?" said Du Fangci, an official with the China Association of Automobile Manufacturers.

"This would be a win-win deal as PSA needs capital investment while Dongfeng requires world-leading technology to strengthen its self-developed vehicles," said Du.

"The French government will always support PSA, one of the largest companies in the country, so an investment in PSA wouldn't bring any huge risks to Dongfeng," added Zhong.

Furthermore, Zhong said that if Dongfeng becomes a major shareholder in its partner PSA, the Chinese company could see a more stable future for its joint venture, Dongfeng Peugeot Citroen Automobile Co Ltd, in the long run, and more importantly, would have more influence in the joint venture.

Even though PSA saw its sales and revenue drop globally, its sales in China, through the joint venture with Dongfeng, rose 32.7 percent in the first half of the year, contributing 30.7 billion yuan in revenue to the French company.

Starting in May, China became PSA's largest market globally.

"We hope that if the stake takeover deal gets done, Dongfeng can benefit from PSA for its self-developed branded products, and make their joint venture more competitive," said Zhong.

"And we're glad to see that Chinese automakers are now becoming stronger and more powerful in the global automotive market, as they're starting to change their roles from partners to investors in international automakers," Zhong added.