BRUCE GAIN

Is PSA about to become a 'three-headed monster'?

Bruce Gain is an Automotive News Europe correspondent in France.Bruce Gain is an Automotive News Europe correspondent in France.
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PSA/Peugeot-Citroen's planned 3 billion euros ($4.1 billion) recapitalization that would see China's Dongfeng Motor and the French government join the Peugeot family as equal shareholders in the company may create more problems than it solves for the struggling automaker.

Some analysts and members of the French press are already saying that the restructured company -- where a trio of major stakeholders would each hold 14 percent stakes -- would be a "three-headed monster" with an unwieldy and inefficient management structure.

The plan would leave "three main shareholders with conflicting objectives," Florent Couvreur, a Paris-based analyst with CM-CIC Securities, said in a note to investors.

Among potential areas of conflict between the Peugeot family, Dongfeng and the French government would be:

• Dongfeng could pressure PSA to reduce expensive production in France and import Chinese-built cars. French politicians would never agree to such a move.

• PSA will find it hard to form pacts with European partners, who would likely balk at the idea of sharing technology with a PSA that is partially owned by a Chinese automaker.

• The recapitalization does not address PSA's need to achieve the economies of scale required to compete against the largest global players. PSA sold 2.8 million vehicles last year while competitors such as General Motors, Toyota and Volkswagen Group all sold more than 9 million units.

Gaetan Toulemonde, a Deutsche Bank analyst, said Dongfeng is essentially a contract manufacturer that is unable to help PSA solve its problem of how to expand worldwide, especially in fast-growing markets such as Russia and Latin America. "Dongfeng brings zero economies of scale," Toulemonde said.

PSA's announcement about the recapitalization in a statement on Monday will help the automaker shore up its financing as the company continues to consume cash.

But the proposed deal has divided the Peugeot family. Thierry Peugeot, PSA's chairman since 2002, is now almost certain to be replaced after he opposed a plan by his cousin, Robert Peugeot, to bring in cash from Dongfeng and the French government.

PSA wants to complete the recapitalization deal before its 2013 annual results are published on Feb. 19. Former Renault Chief Operating Officer Carlos Tavares, who joined PSA on Jan. 1, is likely to be named PSA's new CEO then. He is in for some interesting times!

You can reach Bruce Gain at bgain@crain.com.

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