Peugeot Citroen, Donfeng Eye China Expansion

French auto maker PSA Peugeot Citroen and its Chinese partner Dongfeng Automobile Co. are considering building another assembly plant in China to meet fast-expanding demand for its vehicles.

Loss-making Peugeot said Friday that wants to grow outside its saturated core market in Europe, but lacks the financial strength to be able to invest the huge amounts that would be required to expand production and sales in China as well as in new markets in Asia, and is looking to deepen its 20-year partnership with Dongfeng.

Peugeot and Dongfeng are involved in discussions that could lead to Dongfeng taking substantial minority stake in the French company through a capital increase. The French government could also take a stake in Peugeot to balance Dongfeng's interest, according to people familiar with the discussions.

Peugeot and Dongfeng's existing joint venture DPCA already has three assembly plants in China at Wuhan, which produce the Peugeot 207, 307, 308, 408, 508 and 3008 models, as well as the C2, C-Elysee, C-Triomph, C4, C5 and C4L for the Citroen brand.

Peugeot also has a recently opened fourth production facility at Shenzen with another Chinese partner Chongqing Changan Automobile Co.

A spokeswoman for Peugeot said a decision where to locate the new factory of the Peugeot-Dongfeng will be taken this year, but said it could be at Chengdu, in the western part of China, rather than at Wuhan, where DPCA's three others plants are located.

DPCA is rapidly running out of capacity to cater to the steep rise in demand for automobiles in China. It produced 550,000 vehicles in 2013, and is targeting 650,000 this year. Annual capacity of the three existing plants will be raised to 750,000 by 2015, the spokeswoman said.

Write to David Pearson at [e-mail]

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