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Dongfeng Weighs Rationale for Buying a Stake in Peugeot

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Oct. 17 (Bloomberg) -- A Dongfeng Motor Corp. executive said the state-owned Chinese automaker, which is linked to a potential stake purchase in PSA Peugeot Citroen, should first look at whether such a move makes sense.

Peugeot, Europe’s second-largest automaker, is considering stake sales to Dongfeng and France’s government to shore up funding as car sales in the region plunge to a 20-year low, people familiar with the matter said. Chinese state-owned companies usually obtain permission from the National Development Reform Commission, the top planning agency, before commencing formal negotiations on foreign investments.

“It’s too early to talk about whether we have NDRC’s approval to go ahead with talks,” Zhu Fushou, general manager of Dongfeng Motor, said at an auto-industry forum in Wuhan, where the carmaker is based. “What matters here is not NDRC’s approval, it is whether the project is reasonable or not.”

Zhu’s comments signal that Dongfeng has yet to get permission from the Chinese government on Paris-based Peugeot. The French government is monitoring talks with Dongfeng and may participate should the Chinese automaker decide in favor of a purchase, two of the people familiar with the matter said this month. The negotiations are at an early stage and not expected to be completed for several weeks, they said.

Probable Investors

“As of today, the likely outcome of all of this is to see both the French state and Dongfeng buying up stakes in Peugeot,” said Florent Couvreur, an analyst at CM-CIC Securities who recommends selling the shares.

Peugeot rose as much as 6.3 percent to 10.90 euros, the steepest intraday climb since Sept. 10, and was trading up 5.3 percent at 3:47 p.m. in Paris. The carmaker’s market value has almost doubled this year to 3.83 billion euros ($5.23 billion).

Dongfeng ended acquisition talks earlier this year with Fisker Automotive Inc., a U.S. maker of luxury plug-in cars, as there was “some distance” between the manufacturers’ plans, Chairman Xu Ping said in March. Dongfeng then purchased an undisclosed stake in May in smaller, state-owned Fujian Motor Industry Group Co., giving it access to manufacturing capacity in southeastern China.

The government in China, home to more than 110 auto brands, has said it will curb the increase in carmaking capacity and encourage mergers and reorganizations in the industry to create three to five domestic producers that can compete with companies such as General Motors Co.

GM Ties

GM, which owns Ruesselsheim, Germany-based Opel and U.K. carmaker Vauxhall, is already a partner with Peugeot on developing models and sharing supply procurement in Europe. The Detroit-based company owns 7 percent of Peugeot under the alliance, which is part of the French company’s strategy to restore earnings.

Peugeot burned through 3 billion euros in cash last year, and the automotive unit reported a first-half 2013 operating loss of 510 million euros. It remains on target to cut the cash-consumption rate by 50 percent this year and is on track for a “very significant reduction” in 2014, Chief Financial Officer Jean-Baptiste de Chatillon said yesterday.

Peugeot plans a “clear improvement” of its market share in Europe in the fourth quarter compared to the third, the CFO said in the interview yesterday. The new 2008 urban crossover and 308 hatchback will help push the gains, he said.

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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