Dongfeng's injection of capital to give Peugeot new drive(2)

Analysts said that the alliance will give the French automaker access to cash and the Chinese automaker a path to become an international player.

"PSA and Dongfeng both stand to gain from the deal, with a strategic emphasis on raising sales in emerging markets, while using their production bases in China to offer competitively priced models," said Namrita Chow, a senior analyst with the United States-based consulting firm IHS Automotive.

"For PSA, the benefits of the deal and access to funds are quite straightforward. The automaker will avoid bankruptcy in 2015 following the new capital injection, while the deal with Spanish bank Santander will keep it afloat after its state guarantee expires next year," said Chow.

"The alliance will not only help PSA extend its presence in markets beyond Europe but it will also give Dongfeng greater access to international markets," she added.

"Stagnant and declining markets in Western countries not only helped China overtake the US as the world's largest vehicle market, they also supported improvements in Chinese automakers' capabilities and revenue," said Zhong Shi, an independent auto analyst in Beijing.

"We can see in recent years that more Chinese automakers are capable of competing with foreign rivals in global markets."

Zhong said these trends will also help the Chinese automotive industry in terms of products.

"Local production will no longer mean the simple transfer of existing models to Chinese plants. New models will be jointly developed by foreign and Chinese auto manufacturers," said Zhong.

In the next three years, the partners' 50-50 joint venture - Dongfeng Peugeot Citroen Automobile Co Ltd - aims to ramp up annual production capacity in China to 1 million units. That will support growth in sales in emerging markets in Asia and Africa, starting with Nigeria, using kits from China, according to IHS.

Dongfeng also said in its statement that the two parties will "enhance the research and development capabilities of the entire value chain" and strengthen overseas cooperation to achieve the objective of selling 1.5 million vehicles under the Dongfeng, Peugeot SA and Citroen brands each year starting from 2020.

"The change in structure will greatly benefit their Chinese joint venture, as the tighter partnership will increase the efficiency of formulating strategies and bring more resources to Dongfeng Peugeot Citroen," said Zhong.

"Dongfeng can also put the production of its internally developed passenger car models in the joint venture, sharing resources with its French siblings."

Varin said that through the deal, Peugeot and Dongfeng are taking a partnership that's more than 20 years old to the next level in China by implementing a major industrial plan.

He said Dongfeng Peugeot Citroen will launch two to three new models a year globally under the three brands of Peugeot, Citroen and Dongfeng's own brand.

"The acquisition will help Dongfeng promote its brand around the world and reinforce the reputation of China's automobile industry," said Zhang Zhiyong, a Beijing-based auto industry analyst.

He suggested that Dongfeng should ask Peugeot to shift its market focus to China "so that Dongfeng may benefit from PSA's technology and product advantages."

Currently, Peugeot makes vehicles in three factories in China, under the joint venture Dongfeng Peugeot Citroen Automobile Co Ltd, which was established 1992 in Wuhan, Hubei province. Sales by the venture boomed 25 percent last year to 554,457 units.

In 2013, Dongfeng Motor sold 3.53 million vehicles in China, up 14.8 percent.

In December 2012, Dongfeng agreed with its Japanese partner, Nissan Motor Co Ltd, to locally produce the latter's premium Infiniti vehicles in a plant in Xiangyang, Hubei province, starting this year.

Furthermore, Dongfeng signed a $1.3 billion joint venture agreement with Renault SA in December, the first production facility for the French automaker in China.

In China, privately owned Zhejiang Geely Holding Group Co Ltd sealed a binding deal in 2010 to buy ailing Swedish luxury car brand Volvo Car Corp from US-based giant Ford Motor Co for $1.8 billion.

Last week, China's largest vehicle parts producer, Wanxiang Group Corp, won the bid for the assets of US-based sports car and electric car maker Fisker Automotive Inc for approximately $149.2 million.