Dongfeng CEO says his company won't 'eat' PSA

Zhu Fushou: ''This is not a purchase deal, but a way to help PSA return to growth.''
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RENNES, France -- Dongfeng Motor CEO Zhu Fushou sought to quell the controversy over his company's planned purchase of a 14 percent stake in PSA/Peugeot-Citroen, saying that Dongfeng has no plans to take control of PSA.

Dongfeng's investment is a long-term strategy that will help PSA increase sales outside Europe and allow Dongfeng to compete better with domestic rivals in China, Zhu said in an interview published in the L'Alsace newspaper.

When asked if the dragon -- representing China -- would eat the "lion" referring to Peugeot's symbol, Zhu said: "It is a win-win cooperation, not a purchase deal but a way to help PSA return to growth."

Last month, PSA unveiled a 3 billion euro ($4.1 billion) capital increase in which Dongfeng and the French state will each pay 800 million euros for 14 percent of the carmaker. The founding Peugeot family's holding will fall to 14 percent from its current 25 percent stake and 38 percent of voting rights.

Zhu said Dongfeng's and the French government's purchase of stakes will help PSA to meet its cash needs for the next three years while the money-losing automaker steps up efforts to develop markets outside Europe and implement a recovery plan.

Dongfeng and PSA aim to boost annual vehicle sales at their 22-year-old joint venture in China to 1.5 million from 550,000 last year, he said. "The goal is not limited to the Chinese domestic market, it is also to conquer the whole Asia-Pacific market," Zhu said.

Dongfeng will help PSA reduce the share of its vehicles sales in Europe to less than 50 percent from 62 percent now, he said.

The deeper partnership will also help Dongfeng to better compete with Chinese rivals, Zhu said. Dongfeng launched its own brand in 2009 and sold more than 650,000 vehicles last year, making it the No. 3 domestic brand, he said.

Zhu did not directly address whether Dongfeng would push PSA to continue slashing production in France and in Europe while ramping up production in China.

Referring to PSA’s high-production costs in France, Zhu said: "PSA has cut costs by reducing capacity and has put in place a restructuring plan."

Gaetan Toulemonde, an analyst for Deutsche Bank, said he did not expect PSA to reduce capacity in France or in the rest of Europe in the near term beyond PSA’s plans to slash 10,000 job cuts within three years and after shutting down production at its Aulnay near Paris last year. "I don’t think they need to do more than what they have announced so far," Toulemonde said.

PSA will likely use Dongfeng’s low-cost production base to export cars to emerging markets such as in South America and Russia instead of to Europe, Toulemonde said. "Exports to Europe are not a priority," Toulemonde said. "Other countries are on top of the list compared to Europe."

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

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