Three's Company

Peugeot’s China-funded bailout will create an awkward ménage à trois

February 18, 2014
February 18, 2014

The imminent bailout of troubled carmaker PSA Peugeot Citroen will split control between a French auto dynasty that has run the firm for more than 200 years, a Chinese state-owned auto company on the rise, and the French government. What could possibly go wrong?

The board of the family-controlled company, founded in 1810 as a bicycle and coffee grinder maker, is set to vote on a deal that would give Peugeot a much-needed injection of €3 billion ($4.1 billion). But there isn’t much else about it that makes sense—especially the division of control that will give China’s Dongfeng Motor Group and French government take matching 14% stakes, and will dilute the family’s ownership to parity with their new partners.

“I still don’t understand why they’re doing this deal,” Florent Couvreur, an analyst with CM-CIC Securities told Bloomberg. “The three main shareholders will have completely divergent concerns, with a high risk of conflict.”

Dongfeng, one of China’s four largest automakers, is looking for access to new markets and improved technology. (Dongfeng is also already part of a joint venture with Peugeot’s rival Renault.) The French government is concerned chiefly with protecting French manufacturing and protecting domestic jobs. Meanwhile, within the Peugeot family, members have been fighting over which direction to take the company.

Moreover, as we’ve pointed out, Peugeot has become a kind of poster child for the auto industry’s struggles in Europe, where an oversupply of passenger cars is squeezing sellers of mid-range cars. Even with some additional cash, Peugeot will still have that problem—but now its new ownership arrangement will be pulling it in three different directions.

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