Updated: 02/19/2014 18:45 | By Agence France-Presse

Peugeot seeks salvation with Chinese auto group Dongfeng

Stricken French auto giant Peugeot Citroen handed part control to Chinese firm Dongfeng and the French state on Wednesday to win a new lease on life but still burdened by huge losses.


Peugeot seeks salvation with Chinese auto group Dongfeng

File picture shows employees working on a production line in a new plant of Dongfeng Peugeot-Citroën Automobile Limited (DPCA) in Wuhan, central China's Hubei province

The shareholder tie-ups end the 200-year-old grip of the Peugeot family dynasty, but will raise at least 3.0 billion euros ($4.13 billion) for Peugeot Citroen.

The company, the biggest auto group in France with about 90,000 employees, desperately needs new capital to climb away from near disaster and develop innovative hybrid engine technology.

It has already been effectively rescued by the French state with guarantees of 7.0 billion euros for its credit arm. New financing arrangements revealed on Wednesday are intended to enable it to break free of this state support.

Dongfeng, the number two automaker in China and controlled by the Chinese state, French taxpayers, and the Peugeot family will now each own 14.0 percent of Peugeot Citroen.

But Peugeot, now counting on the Chinese market to propel it to a leading position in Asia, also reported a net loss of 2.3 billion euros, although that was less than half the figure of 5.0 billion euros in 2012.

The deals amounted to a "major" strategic operation with the French state as a "long-term partner," said French Prime Minister Jean-Marc Ayrault.

Finance Minister Pierre Moscovici said the restructuring was intended to ensure that the group survived and to open access to new markets "notably the Chinese market".

Peugeot had undertaken not to close any more factories in France where it would produce a million vehicles per year by 2016, would invest 1.5 billion euros and retain 75 percent of research in the country, he said.

- Deals open 'a new page' -

The outgoing chairman of the supervisory board which approved the decisions late on Tuesday, Thierry Peugeot who had fought the entry of Dongfeng, said the deals opened "a new page in the history of PSA Peugeot Citroen."

The new-look group, to be headed by a new chief executive Carlos Tavares, formerly number two at the second French automaker Renault, will also invest in develop its unique hybrid compressed-air technology and in strengthening is position in emerging markets as well as in Europe.

Annual results on Wednesday showed that Peugeot, the second-biggest European automaker after VW of Germany, staunched the outflow of cash which was bleeding it towards slow death.

In 2012 it had consumed 3.0 billion euros of cash, but reduced this last year to 426 million euros and hoped to show net cash generation by 2016 at the latest, it said. 

The deals offer the group a chance to break out of excessive dependence on the European market which nearly strangled it during the recent downturn.

Shares in the group jumped by 7.88 percent initially, but then showed a gain of 2.0 percent to 12.75 euros, with investors welcoming the cut in the net loss and the recapitalisation deals.

Fitch ratings agency raised its outlook for the group from negative to stable, holding its notation of "B+".

The group, criticised by a government enquiry for missing opportunities of globalisation for many years, declared that this new chapter would accelerate "its globalisation and emerging markets expansion strategy, while reinforcing its financial strength."

Peugeot announced that Chinese state-controlled Dongfeng and the French government would each inject 800 million euros ($1.1 billion) for 14-percent stakes in the company.

The Peugeot family -- which has controlled the firm since its founding in 1810 as a maker of coffee mills and bicycles -- will see its 25-percent stake and 38-percent voting rights diluted to the same amount.

- 'It saves our bacon' -

Current chief executive Philippe Varin said the group would retain its 51.70-percent control of French car-parts maker Faurecia.

The final deal is expected to be signed at the end of next month during a visit by Chinese President Xi Jinping to Paris.

Dongfeng Motor Corp., founded in 1969 and whose name means "East Wind", sold 3.53 million vehicles in China in 2013, giving it a 16-percent market share. It also has links to Renault.

At Peugeot's historic Sochaux plant in the eastern Franche-Comte region, workers welcomed the reorganisation but expressed fears the deal would eventually see their jobs relocated to China.

But "if it saves our bacon, that's a good thing," said Christian, 57, one of the factory's 11,500 workers.

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