Peugeot Reconsiders Alliance with GM as it Looks to China for Help

France’s largest carmaker PSA Peugeot Citroen has said that its alliance with General Motors may be scaled back, sparking speculation that it is doing so in preparation for a deeper partnership with China’s Dongfeng Motor.

The carmaker, which recently posted a 3.7 percent quarterly revenue decline, said plans for a joint small-car program with GM are “under review”, despite having announced earlier this month joint production of B-segment MPVs in Spain.

“The project of development of a new joint platform for B segment models with GM is under review as well as the relevant terms of the development agreement. As a result, the announced mid-term synergies ($1 billion for PSA) may be readjusted downwards. New initiatives are under consideration,” Peugeot said in a statement.

Peugeot is currently in tie-up talks with its Chinese partner Dongfeng Motor. Dongfeng and the French have stated that they are considering taking equal stakes in Peugeot of about 20 percent in a capital increase that would raise at least €3 billion ($4.13 billion). While the GM alliance is focused on cost reductions in the shrinking European market, a partnership with Dongfeng would help Peugeot expand in China and boost its profits.

Peugeot and Dongfeng currently operate three factories together in China, with annual production capacity expected to rise by two-thirds to 750,000 vehicles until the end of 2015. Peugeot’s sales in the first nine months of this year in China rose 29 percent to 403,000 vehicles. Peugeot has a second joint venture in the country, Changan PSA Automobile, and opened a fourth factory last month.

Should PSA Peugeot Citroen pursue a deeper partnership with Dongfeng, it would risk the GM alliance, since GM’s Chinese partner is SAIC Motor, a rival for Dongfeng. If that happens, GM may pull out of the alliance with PSA and sell its 7 percent stake.

By Dan Mihalascu

Story References: Reuters & Bloomberg

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