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July 28, 2017

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Long road to Europe for Dongfeng despite stake in Peugeot: analysts

BEIJING--Chinese carmaker Dongfeng hopes its acquisition of a US$1.1 billion stake in struggling French manufacturer PSA Peugeot Citroen will bring it a technology dividend and access to Western markets, but analysts said the road is likely to be long and bumpy.

Peugeot's board Tuesday approved an agreement for state-controlled Dongfeng Motor Corp. and the French government to each inject 800 million euros (US$1.1 billion) for 14-percent stakes in the company, leaving the Peugeot family with a similar-sized shareholding.

While PSA is primarily seeking cash, Dongfeng — China's second-biggest automaker — is likely to try to use the deal to improve quality while simultaneously seeking to transform itself into a global brand, analysts said.

"PSA needs desperately some help and new capital," said Klaus Paur, London-based global head of automotive research for consultancy Ipsos, while the deal potentially offers Dongfeng entry onto a wider stage.

"The first step will be to get access to technologies, access to knowledge and experience so they can learn how to deal in the global automotive market," which is "precisely something Chinese manufacturers might lack at this point of time," Paur told AFP.

Dongfeng has long-standing joint ventures with several foreign firms, including Japan's Nissan and Honda and South Korea's Kia, has been a partner of PSA since 1992 and recently allied with its competitor Renault. But those partnerships are focused on production in China, the world's biggest car market.

"For Dongfeng and PSA, the approach is different, because this would propel the collaboration above the pure Chinese operations," Paur said.

"It means Dongfeng will have access to their international strategy and to their technologies," he added. "It's a completely different level of things."

'No brand'

Namrita Chow, Shanghai-based manager of consultancy IHS Automotive, said the deal will help Dongfeng stand out among domestic rivals.

"It makes Dongfeng part of an international auto manufacturing group — something which is very rare for Chinese automakers," Chow told AFP.

Dongfeng last year agreed to sell a 45 percent share in its truck division to Swedish commercial vehicle maker AB Volvo, which says the deal will make it the world's biggest heavy truck manufacturer.

But Dongfeng still needed to find a partner to help it expand its passenger car business internationally — an area in which its own brands have failed to shine even in China, where foreign joint ventures have the lion's share of the market.

And to find that partner, Dongfeng opened its wallet.

"Obviously Dongfeng has nothing to contribute but cash — it has no technology, no brand, no overseas operating experiences," said John Zeng, Shanghai-based analyst with consultancy LMC Automotive.

"This deal is definitely crucial for PSA Peugeot Citroen to sustain its current operation, but for Dongfeng, it could mean more risks than opportunities," he said.

One reason, he said, is the uncertain nature of technology transfers, while Dongfeng's stake in PSA is limited to 14 percent. That contrasts with compatriot Geely, which in 2010 bought Volvo Cars in its entirety.

"Technical expertise is something which only comes with many, many years of experience," added Chow. "For Chinese automakers, actually, the greatest advantage is having access to international engineers and international (production) locations."

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