WHEN the president of China, Xi Jinping, comes to Paris in late March he will formally endorse a new deal that was agreed on February 18th under which China’s Dongfeng becomes an equal shareholder in PSA Peugeot Citroën, the leading carmaker in France, alongside the French government and the Peugeot family. The deal brings an end to a 200-year family dynasty at the heart of French manufacturing. The Peugeot family used to control 38% of the shares (and hold 24% itself), with the remaining shares floated.
Now it will have a 14% stake, as will the French state and Dongfeng, a state-controlled car company. The two new investors will put in €800m ($1.1 billion) each and existing shareholders will cough up the rest of a €3 billion capital increase. Peugeot is also finalising a deal with Santander, a Spanish bank, to prop up its consumer-finance subsidiary, which has been kept afloat by a temporary loan guarantee from the French government.
As the economic crisis spread, Peugeot, heavily dependent on France and the European Union, was stricken. As loss followed loss its share price collapsed to around €5 in 2012, before doubling last year when it became obvious the French government was seeking a rescue with Chinese help. Peugeot also reached a new flexible-working deal with the French unions and closed one assembly plant near Paris as part of a recovery plan, which will shed over 11,000 French jobs. On February 19th Peugeot announced a net loss of €2.3 billion for 2013, an improvement on the €5 billion it lost in 2012. It hopes to have a positive cash flow by 2016.
Peugeot and Dongfeng have long had a joint venture in China, but the new closer arrangement allows them to use European technology to roll out new models in rapid succession in order to make a bigger impression on the booming Chinese market for small saloon cars—the area where Peugeot’s traditional strengths lie. Peugeot has suffered in Europe, where its market share has tumbled from 15% to barely 12%, with Volkswagen streets ahead. Now, at least, the French company has the resources to renew its fleet, stage a comeback and make a impact in emerging markets around the world.
As the company’s woes mounted over the past decade, so did tension between the family and top management. Thierry Peugeot, the chairman of the supervisory board and family patriarch, even found himself at odds with the rest of the family as he sought to keep Peugeot totally private and seal a rescue deal with General Motors. Now the big question is how the three big shareholders will get along, with potentially differing aims. The French government will strive to keep domestic factories open, whereas Dongfeng will prioritise Chinese growth. A veteran French industrial star, Louis Gallois, is tipped to succeed Mr Peugeot as chairman. Carlos Tavares, formerly number two at Renault, starts as chief executive next month.
Renault recovered by allying itself with Nissan and embracing globalisation, cutting production in France and increasing it in the wider world, notably in Romania, Russia and Brazil. Peugeot has come a cropper by its inability to lift its eyes beyond France and western Europe, and misjudging the forces of globalisation. The irony is that those forces of globalisation have rescued it, just as they did earlier across the Channel, where British car production (in factories owned by Japanese and Indian firms) last year overtook France’s for the first time in half a century.
By the Economist