PSA Peugeot Citroen has agreed to a €1.1 billion (R15.7 billion) writedown at its ailing overseas operations in return for an end to General Motors’ opposition to the French carmaker’s proposed tie-up with China's Dongfeng Motor Group, that would give it the time and cash to pull out of its downward spiral.
GM has also sold its seven-percent stake in Peugeot, while insisting that their technical co-operation remained strong firm despite lower savings targets for the scaled-down alliance.
One of the worst casualties of Europe's economic slump and six-year car sales decline, Peugeot is cutting jobs and plant capacity in an attempt to halt losses within two years.
Nevertheless, London-based Barclays analyst Kristina Church warned: “No matter how the deal is structured, we cannot see anything positive in today's news on Peugeot.
“The company’s stock could eventually begin to recover after a capital injection - but this assumes Peugeot is able to use the €3.5 billion (R50 billion) it could bring in for future growth, whereas in reality we worry that it will be swallowed by operational cash burn.”
Peugeot and Dongfeng have been in negotiations to extend their existing Chinese partnership to other Asian markets, backed by a share issue in which the French state and Dongfeng would take matching Peugeot stakes.
Peugeot has said discussions are at “preliminary stage”, with no guarantee of a successful outcome.
“There is no agreement on the terms of a potential operation.”
Dongfeng, based in the central Chinese city of Wuhan, declined to comment on the tie-up talks.
“We're still in touch,” spokesman Zhou Mi said. “There's nothing more I can say.”
French finance minister Pierre Moscovici said his government would support new industrial pairings for its biggest carmaker.
“We want this company to be able to conclude strategic partnerships that will enable it to achieve the renaissance that it deserves,” he said.
A Peugeot-Dongfeng deal would be “looked upon favourably” in Paris providing it protected Peugeot and Citroen plants (and hence employment) in France.
Peugeut's plant in Kaluga, Russia, is among production investments “whose book value is no longer covered by future cash flows”, according to chief financial officer Jean-Baptiste de Chatillon Chatillon. The group’s auto division as a whole posted a €510 million (R7.3 billion) operating loss in the first half of 2013, but Peugeot nonetheless reiterated its 2013 goal of halving last year's € 3 billion (R43 billion) negative cash flow.
In October Peugeot and GM scrapped a small car programme but joint development of compact and small minivans will continue, and a delivery van programme is also being considered. - Reuters