Peugeot Won’t Be Able To Take Required Harsh Measures.
Details Reveal Thinly Disguised Attempt To Fool E.U.
Peugeot-Citroen’s bail-out by France and Dongfeng of China is reeling under harsh criticism including doubts about its long-term efficacy, while a deeper examination of the terms suggests a flagrant abuse of EU rules.
Automotive News China columnist Yang Jian, in an article headlined “Why the PSA-Dongfeng deal does more harm than good”, said the agreement will prop up Peugeot-Citroen in the short-term, but has shortcomings that could cripple its competiveness in the long run.
Jian said Peugeot-Citroen is inefficient with too much capacity and too many employees, and with the French government on board is unlikely to be able to do anything about it.
“How will these directors respond if Peugeot-Citroen tries to cut costs in France,” Jian said.
Jian said Dongfeng wanted to take part in the bailout because it wants to access Peugeot-Citroen technology.
“But is Peugeot-Citroen willing to share its technology with a Chinese company?” Jian said, suggesting that this is a likely source of long-term friction.
Max Warburton of Bernstein Research thought the deal was unnecessary because despite its huge losses Peugeot-Citroen still had plenty of cash, and should have sold its components subsidiary Faurecia if it really needed the money.
“We fear this deal will create more problems that benefits. How exactly will a manufacturer run by a committee of French state representatives, Dongfeng executives and Peugeot family members operate,” Warburton said.
The French socialist government and Dongfeng both paid about €800 million for 14 per cent stakes in the company, matching the Peugeot family’s new, watered down equity.
Three heads
During the deal’s negotiations, the French media was quick to call this a “three-headed monster” or the “lion with three heads”, with an unwieldy and inefficient management structure. French Industry Minister Arnaud Montebourg said the government has no intention of interfering with daily management, then said the company should increase production at home.
Sarah Gordon, Financial Times Business Editor, thought the deal was constructed to thwart E.U. rules because it allowed the company to say the investment from the French government was matched by private funds from Dongfeng. But Gordon said Dongfeng’s parent company is owned by the Chinese government.
“The French government has bailed Peugeot out already – providing a €7 billion guarantee for its finance arm a year and a half ago, and a restructuring plan to go with it. Any new handout – except in the form it has taken – would have fallen foul of the requirement that state aid can normally be provided to a company only once a decade, to avoid repeated injections of public money into companies without a viable future,” Gordon said.
Delay profitability
Gordon pointed out that Peugeot-Citroen has lost more than €7 billion in the last two years, but as part of the deal over France’s money injection, it has agreed not to close factories.
“This may protect French jobs, but delay any return to profitability,” she said.
There some supporters of the deal.
“Peugeot-Citroen is set to benefit from a European recovery. In addition, we believe the turnaround will accelerate once Mr (Carlos) Tavares takes over as CEO. We clearly remain positive and confirm our “Buy” rating,” said Commerzbank analyst Sascha Gommel.
Tavares takes over on March 31 and is due to unveil his “Back in the Race” plan in mid-April.
Automotive News’ Jian hopes the plan might include a pledge to roll-back the Chinese involvement.
“Peugeot-Citroen should repurchase Dongfeng’s stake after the French automaker regains financial health. Otherwise, its deal with Dongfeng and France will hobble its efficiency and antagonize its powerful Chinese partner in the world’s largest auto market,” Jian said.
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