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Ambivalent reactions to the Dongfeng-PSA deal

– by Oliver Spiro

The new capital tie-up between Dongfeng Motor and PSA was made official at a signing ceremony on March 26, finalizing a process that has been in the works since February.

Dongfeng Motor and the French government will both take 14 percent shares of PSA. Chinese president Xi Jinping personally oversaw the signing, along with French president Francois Hollande.

The joint venture offers new capital for a struggling PSA and it is a step towards becoming a global brand for Dongfeng. However, reactions to the deal have been mixed.

“This agreement will mean more research and development…in the sales of our products,” said Xu Ping, president of Dongfeng Motor, quoted by Agence France Pressem (AFP). This is just what Chinese manufacturers lack, according to Klaus Paur, a London-based analyst, quoted by AFP.

“PSA needs desperately some help and new capital,” said Paur. AFP noted that PSA losses in 2013 totaled €2.3 billion ($3.2 billion).

The reasons for supporting the deal are matched by doubts about its efficacy and concerns about its risks.

“This deal is definitely crucial for PSA Peugeot Citroën to sustain its current operation, but for Dongfeng, it could mean more risks than opportunities,” said another analyst quoted by AFP. PSA is currently struggling in Europe, with one BBC report calling Peugeot “one of the worst casualties of the slump in European markets.”

PSA made a pledge of 1.5 million for its sales with Dongfeng in 2020. However, an analyst quoted by Reuters commented, “We don’t doubt PSA’s ability to capture additional share in a Chinese premium market that is growing very strongly but caution against too much optimism…With only 3,500 units sales in China in 2013 there is nowhere near as much brand awareness for Citroën’s DS.”

The deal would also be risk-ridden for PSA, according to an analyst at Automotive News. “With too much production capacity and too many employees, PSA is not an efficient company … That problem isn’t likely to get any better now that the French government will have representatives on PSA’s board.” Furthermore, according to the analyst, one of Dongfeng’s main goals in making the deal is to gain access to PSA’s latest technology. This is a problem because Dongfeng’s Aeolus brand might eventually compete with Peugeot and Citroën.

A further worry for France is the lessening of the Peugeot family’s influence, and France’s own influence, in the company. China Daily noted that French politicians worry about factory closure and job loss as a result of the deal.

“We are very happy to welcome two new long-term shareholders with this capital injection,” said Robert Peugeot, quoted by AFP. However, his brother and board chairman Thierry Peugeot wanted to put money into the business to increase the family’s influence, according to a BBC report. The Peugeot family’s share will fall from 25.4 percent to 14 percent as a result of the deal.

In response to the political worries, the French finance minister said “the state being shareholder is there to guarantee that PSA remains anchored in France,” according to an AFP report.  In contrast, president of PSA’s managing board and soon-to-be CEO Carlos Tavares was quoted by China Daily as saying PSA is not even “locked up in a bipolar entity or simply a Franco-Chinese entity.”

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