French President Francois Hollande and visiting Chinese counterpart
Xi Jinping oversaw the signing of a framework deal for state-owned
Dongfeng Motor Group <0489.HK> and the French government to take
matching 14 percent Peugeot stakes in a 3 billion euro ($4.1
billion) capital increase.
New Peugeot CEO Carlos Tavares must now turn around unprofitable
European operations, halt persistent Latin American losses, deliver
on China plans that many consider ambitious and treat a Russian
headache that may be about to worsen.
The tie-up allows Peugeot and Dongfeng to extend their existing
Chinese joint venture to co-develop vehicles, ramp up production to
grab a bigger share of the world's largest auto market and export
their cars around Asia.
After Wednesday' signing ceremony President Hollande said that deal
makes Peugeot "a carmaker of global dimensions that can be present
on all markets".
"This is no longer just about selling, it's about investing
together," he said.
Tavares, former second in command at rival French carmaker Renault <RENA.PA>,
takes over as CEO next week, with Thierry Peugeot bowing out as
chairman in a deal that had pitched him into public conflict with
cousin Robert over the dilution of the family's stake and loss of
"When you pass major milestones it's normal that there be
discussions and differing opinions," Robert Peugeot, who heads the
family's holding company FFP <FFPP.PA>, said in a radio interview.
"But when the day comes for decisions, they are taken unanimously."
With losses mounting almost everywhere else, Peugeot has high hopes
for China, pledging a near-trebling of sales with Dongfeng to 1.5
million vehicles in 2020.
In a second Chinese venture with Changan <000625.SZ>, Peugeot
expects to sell out its annual production capacity of 200,000
upscale DS vehicles by 2016, a spokesman said as the company
prepares to roll out a new DS5 LS mid-size sedan.
"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," Erich Hauser, of International
Strategy & Investment, said in a note.
Meeting the company's goal of a 10 percent share of the premium
market would require its network of 56 Chinese DS dealers to expand
at an unlikely rate and match the 2012 sales of Mercedes-Benz <DAIGn.DE>
through 262 outlets, the London-based analyst said.
"With only 3,500 unit sales in China in 2013 there is nowhere near
as much brand awareness for DS," he added.
[to top of second column]
While Peugeot gave no geographical breakdown of last year's 2.32
billion euro loss, the carmaker has confirmed it is losing money in
Latin America and Russia.
Tavares faces a long haul to restore profitability to plants in both
regions, in part by reducing a heavy dependence on imported
components that has left Peugeot critically exposed to a recent
currency slide in emerging markets.
Peugeot's sales tumbled 16 percent in Brazil last year and 19
percent in Russia, with its outlook vulnerable to a weaker ruble and
possible trade sanctions over the country's military incursion into
While rival Renault <RENA.PA> buys 80 percent of Russian parts
locally, Peugeot is 70 percent import-dependent at the Kaluga plant
it shares with Mitsubishi <7211.T>.
"Peugeot is small in Russia and has the wrong product," said UBS
analyst Philippe Houchois, who predicts that its losses in the
country may be worsened by the ruble's weakness.
In the saturated European market, which still accounts for 58
percent of the company's sales, Peugeot registrations have begun to
bounce back after a six-year slump, rising 5.1 percent in the first
two months of 2014.
Peugeot closed its Aulnay plant near Paris last year and may need to
pursue more cost savings beyond the current recovery plan, Tavares
said this month.
Pressed during his Europe1 radio interview on the possibility of
further cuts, Robert Peugeot said on Wednesday that factory closures
are "not currently part of the plan".
($1 = 0.7258 euros)
(Additional reporting by Elizabeth Pineau;
editing by Andrew Callus
and David Goodman)
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