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Dongfeng Motor Holds Investment Talks with France’s Peugeot

Dongfeng Peugeot-Citroen Automobile Plant
Workers prepare to paint a vehicle, seen through the windows of a clean room, in the paint shop of a plant operated by Dongfeng Peugeot-Citroen Automobile Ltd., the joint venture between Dongfeng Motor Corp. and PSA Peugeot Citroen, in Wuhan. Photographer: Tomohiro Ohsumi/Bloomberg

Dongfeng Motor Group Co., the Chinese partner of PSA Peugeot Citroen, held negotiations with the French automaker on a potential investment.

Dongfeng discussed investing in Peugeot’s securities and possibly cooperating in technology, research, manufacturing and distribution, it said in a statement today. Shares of the Chinese company, based in Wuhan, Hubei province, rose 2.1 percent to HK$11.54 before being halted in Hong Kong trading earlier today, paring this year’s loss to 4.9 percent.

Peugeot, Europe’s second-biggest carmaker, said last month that it’s in talks to sell stakes to Dongfeng and France’s government as part of a 3 billion euro ($4.1 billion) capital increase to fund a reorganization. The French company probably lost money for the second year in a row in 2013, according to analyst estimates, as industrywide car sales in Europe reached a two-decade low.

“It’s a very good opportunity for them to have a tighter, closer relationship with a developed country’s automaker,” said Jeff Chung, a Hong Kong-based analyst at Daiwa Securities Group Inc. “That will help them to diversify geographical risk, product risk and also right now given that they have a lot of cash, Dongfeng Motor still has an upper hand in these negotiations.”

Dongfeng has not entered into any agreement and will make a further announcement when necessary, it said in today’s statement.

Peugeot said in January that it’s targeting a formal deal with Dongfeng and France by the time the company reports full-year earnings on Feb. 19. The company hasn’t specified the size of the potential stakes Dongfeng and the French state may buy.

Emerging Markets

Peugeot and Dongfeng opened their third joint assembly plant in July to produce four models in the country. Peugeot also has a Chinese factory with Chang’An Automobile Group to make DS models. Peugeot plans to have production capacity for 950,000 vehicles in the country by 2015.

“If we invest in Peugeot, it’ll bring benefits such as technology and other resources that will help us develop our own cars,” Dongfeng General Manager Zhu Fushou said in an interview last month in Beijing. “Peugeot’s main problem is its heavy reliance on Europe, which it should address by shifting focus to emerging markets.”

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