Dongfeng, Peugeot in Auto Partnership Talks -- Update

By Colum Murphy 

SHANGHAI--Chinese auto maker Dongfeng Motor Group Co. said Monday it is in talks with France's PSA Peugeot Citroën on a possible partnership but said no agreement had been finalized.

In a statement to the Hong Kong exchange, Dongfeng Motor said such a partnership could include possible cooperation in technology, research and development, manufacturing and overseas distribution.

Peugeot, which is looking to raise around EUR3 billion ($4.09 billion) in capital, had earlier said it was in talks with the Chinese auto maker and the French government. People familiar with the negotiations have said the two parties would contribute between a third and half of the amount. PSA would make an additional public rights issue to make up the required amount.

The disclosure came after Dongfeng earlier on Monday requested that its Hong Kong-traded shares be suspended pending an announcement. It said it would apply with the exchange to resume trading on Tuesday.

The statement suggested that Dongfeng Motor Group, and not its parent, is in talks with Peugeot. Dongfeng Motor Group is controlled by unlisted parent Dongfeng Motor Corp.

Dongfeng is China's second-biggest car maker by volume if its sizable commercial-vehicle sales are included. But the overwhelming majority of Dongfeng's cars are produced with the company's joint-venture partners, which include Japanese auto makers Nissan Motor Co.and Honda Motor Co., in addition to Peugeot.

Dongfeng's self-branded cars account for about one-eighth of its total passenger-car sales, according to a Bernstein analysis based on data from the China Association of Automobile Manufacturers, an industry body.

Experts say owning a substantial share of Peugeot could allow Dongfeng to access the French auto maker's know-how, including product platforms, technologies and quality-management systems, and help its international expansion to emerging markets.

But analysts also say much depends on what PSA is willing to give to Dongfeng as part of the deal.

"PSA would appear to need Dongfeng's money more than Dongfeng needs the investment," said Macquarie Securities analyst Janet Lewis. "It could be PSA needs something to sweeten the pot and make the deal more attractive to Dongfeng."

Write to Colum Murphy at [e-mail]

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