Peugeot ready to announce Chang’an venture

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For several years Peugeot have been readying to expand their line up but their JV partner Dongfeng is already stretched out with its Honda, Nissan, Kia, and PSA JV’s which have left each partner fighting for production capacity and engineering time from their Chinese partner, however a partnership with Chang’an will give Peugeot a mighty new South Western market in China into which they can expand, as Peugeot appear to be appealing to mostly East coast consumers and the interior market remains untapped.

From Bloomberg Business Week:

The venture will produce passenger cars as well as light trucks, allowing Peugeot to enter the fast-growing Chinese market for delivery vehicles, another person said.

PSA Peugeot Citroen, France’s largest carmaker, is close to announcing a venture with China Changan Group Co., Chief Executive Officer Philippe Varin said in an interview.

“We’re in advanced discussions, and we’ll announce something as soon as we can,” Varin said yesterday at an industry event in Paris, when asked whether Peugeot had reached an agreement on a partnership with Beijing-based Changan.

Peugeot and Changan agreed on the outlines of a plan for joint vehicle production in China, according to three people familiar with the matter, who asked not to be identified because the talks are confidential. An announcement may be made as early as today, they said. China Changan is the parent of Chongqing Changan Automobile Co., Ford Motor Co.’s partner in China, which overtook the U.S. as the world’s largest auto market last year.

Under the agreement, Peugeot and Changan will each own 50 percent of the venture, which will use a factory in Shenzhen owned by Harbin Hafei Automobile Industry Group Co., the carmaker that merged with Changan last year, according to one of the people.

The venture will produce passenger cars as well as light trucks, allowing Peugeot to enter the fast-growing Chinese market for delivery vehicles, another person said.

Dongfeng Motor Venture

Peugeot already assembles models including the 308, 408 and Citroen C5 mid-sized car in a Chinese partnership with Dongfeng Motor Group Co. CEO Varin is focusing the Paris-based company’s overseas expansion efforts on China, where the law allows foreign carmakers to have two local partners.

The French carmaker’s Chinese operations are dwarfed by market leaders General Motors Co. and Volkswagen AG, which have 16 percent and 12 percent of industry wide sales respectively.

“Peugeot has good momentum in China but they’re relative latecomers,” said Arndt Ellinghorst, a London-based analyst at Credit Suisse. Auto-market growth may begin to level off as the Chinese government trims stimulus measures amid fears of economic overheating, he said.

“The market’s getting crowded, and brands like Peugeot may not have the infrastructure and the brand heritage to withstand a price war when it slows down,” Ellinghorst said.

Third Factory

Peugeot is also planning a third factory with Dongfeng as their two plants in Wuhan, eastern China, approach their limits, Varin said. The two plants’ combined production will be at least 350,000 vehicles this year, out of an annual capacity of 450,000, he said.

Peugeot dropped 58 cents, or 2.8 percent, to 20.45 euros in Paris trading yesterday. The stock has declined 14 percent this year, the worst performance on the Bloomberg Europe Autos Index, which gained 5.4 percent. Changan Automobile rose 0.5 percent to 11.29 yuan at mid-day trading break in Shenzhen.

At yesterday’s event, Varin also said that Peugeot is offering to pay off one-third of its 3 billion-euro ($3.9 billion) government loan this year. The move would require a waiver of terms preventing any repayment before 2011.

Smaller domestic rival Renault SA, which received a loan of the same size early in 2009, favors a coordinated early repayment with Peugeot, CEO Carlos Ghosn said on May