Peugeot Inks €3bn Deal with Dongfeng and France

PSA Peugeot Citroën has sealed a long-awaited rescue deal that will see the Peugeot family cede control of the company.  As announced previously, (in our “PSA Peugeot Citroën – Fortune Cookie Future?” blog – Oct. 18, 3013) China’s Dongfeng Motors and the French government will each invest about 800m euros (£660m) in return for 14% stakes.  Another 1.4 billion euros will be raised from existing investors in Peugeot.

The deal is still subject to a shareholder vote but will provide much-needed cash to keep PSA Peugeot Citroën afloat after government guarantees expire.  Should it be approved, the Peugeot family’s 25.4% stake, and 38% of voting rights, will be diluted to 14%, short of the one-third required to veto decisions and matching that of the French government and the Chinese automaker.

The deal comes on the heels of the latest PSA Peugeot Citroën financial results, announced on Wednesday, that its net loss narrowed to 2.32 billion euros last year, compared to a 5 billion euro loss in 2012.  Though a modest improvement, the company further warned that it may face losses until 2016.

In a statement to the Hong Kong stock exchange, Dongfeng said the deal with Peugeot will expand cooperation in technology, research and development, manufacturing and overseas distribution.   And it stated an objective of selling 1.5 million vehicles under the Dongfeng, Peugeot SA and Citroën brands per year starting from 2020″.   Does that mean that their joint venture might mean exporting vehicles from China?

Global automakers that want government permission to manufacture in China are required to work through local partners.  (The reason for PSA Peugeot Citroën’s alliance with Dongfeng being established in 1992).  Such ventures usually focus on China’s domestic market and avoid exports that would compete with the global brands’ operations abroad.  The only major exception is a venture by GM and its main Chinese partner in India to sell cars developed in China.

The French government chiming in on their role in the investment with a rather different perspective saying that further plant closures in France were “not on the agenda” once it became a major shareholder.  (Last year, PSA Peugeot Citroën faced criticism for closing its Aulnay-sous-Bois plant in the Paris suburbs in an attempt to cut costs.  And this year two lines at the Citroën assembly plant in Poissy are to become dormant).  French Industry Minister Arnaud Montebourg reportedly said the deal would “prepare Peugeot’s renaissance and the international development of a company that had become isolated”.  So now PSA Peugeot Citroën will be more open to the competitive world market by their investment?   Maybe as far as a bail out goes, but wait, – doesn’t the French government also have a vested interest in Renault?  Why yes! They own 15.7 per cent of the company.  In fact, it gets even more convoluted…  Dongfeng Motors produces cars not only through its partnership arrangement with PSA Peugeot Citroën.  It also has agreements with Nissan and Honda.  And Renault has a 43.4% controlling stake in Nissan.  So with both of PSA Peugeot Citroën’s new investment parties there are significant ties to Renault!

Which brings us once again to the topic of what will become of Citroën?  We note that in the past few years any corporate mention of Citroën has always emphasized the “brand”.   The new DS models, the new C4 Cactus, and the new DS World showroom in Paris, to name a few examples.  Have Citroën executives been spinning the brand marketing pitch to shore up Citroën as the marque to keep should the decision need to made to consolidate the model offerings of Citroën and Peugeot?  With Thierry Peugeot and the family now being in a minority position, branding may be what’s it all about to survive within PSA Peugeot Citroën given that the company is to survive at all!

There have been months of talks over the fate of the French carmaker, and reports say the deal is likely to be formally signed in March.   Board meetings should be pretty lively after that!



Industry watchers say infighting played a large role in the Peugeot family’s loss of control of PSA/Peugeot-Citroen.  After the death of family “strongman” Pierre Peugeot in 2002, discord among family members held back strategic decisions such as deepening ties with other automakers to enable the company to build up the scale necessary to survive in the modern industry.  “The structure of the Peugeot family’s role in the company worked very well for a long time but when the family became divided, it became a negative influence,” Bernard Jullien, director of the French think tank Gerpisa, told Automotive News Europe.  Many family members likely will be happy to cede control of the money-losing company for the possibility of getting a better return on their investments, Jullien said.

The Peugeot family has controlled the carmaker since its founding by French industrialist Armand Peugeot in the days of steam-powered cars in 1889, and through a bumpy merger with Citroen in 1975.  However, Jean-Louis Loubet, a professor at the University of Evry-Val d’Essonne and author of a book on the Peugeot dynasty, says the family hasn’t had clear leadership in 10 years. “The decision-making process used to be centralized in the hands of PierrePeugeot, the family’s strongman,” Loubet told Bloomberg News. “Since his death in 2002, the family governance has become more collaborative.”  Keeping family united during his time as a member of PSA’s management committee from 1972 to 1998 and as supervisory board chairman until his death in 2002 at age 70, Pierre Peugeot worked to keep the family united and the company independent.  He refused to tie PSA with other groups through share exchanges, preferring to form ad hoc ventures on specific projects.

When Jean-Martin Folz, a protege of Pierre Peugeot, stepped down as PSA CEO in 2007 after 10 years at the helm, the family’s divergent views on running the automaker became evident.  Robert Peugeot, head of innovation at the company, sought the top job but his cousin, Thierry, blocked the move, arguing that tradition was to choose outside CEOs. Since then, PSA has had two CEOs, neither with auto-industry experience. Christian Streiff, a former Airbus executive, lasted just over two years. Current CEO Philippe Varin is the former head of steelmaker Corus Group.

A main point of contention among family members centered on PSA’s attempts to expand overseas, especially in China, as it sought to compensate for its eroding margins and sales in Europe.  The Peugeot family’s and PSA’s missteps prevented the automaker from expanding fast enough overseas to effectively compensate for its big losses in Europe, in contrast to French rival Renault’s relative success in international markets, Gaetan Toulemonde, an analyst for DeutscheBank, said. “PSA’s international strategy is clearly a failure,” he said.  PSA has been slow to adapt to competitive threats and missed opportunities to deepen partnerships with BMW, Toyota and Mitsubishi Motors.  Now PSA has been forced to take Dongfeng on board as a stakeholder after car sales in PSA’s crisis-hit European home market plunged in the past few years. Robert Peugeot, head of the FFP family holding, and PSA CEO Varin pushed through the Dongfeng deal, defeating Thierry Peugeot, PSA board chairman, who wanted to attempt to raise capital through the markets without bringing in new stakeholders.

The division among the family’s senior members reflected PSA’s inability to put a viable long-term strategy into place, Jullien said. “Chinese partners, in particular, were often reluctant to form an alliance with PSA because they were uninterested in PSA’s goals to seek short- and medium-term profits over long-term opportunities, especially in developing markets,” he said.  The Peugeot family’s 2012 acquisition of 7 percent of Orpea, which operates assisted-living facilities, attested to the family’s waning interest in retaining its legacy control of the automaker by looking for profits and shareholder value opportunities outside of the car making sector.  The acquisition was also part of a diversification strategy that has reduced the automaker’s share of assets in the family’s listed holding company to 35 per cent from more than 90 percent in 2000.

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