The automotive industry has performed wonderful dramas as soon as it opens. On February 18, Dongfeng Motors bought shares of the French PSA Peugeot Citroën (PSA). Dongfeng will purchase approximately 14% of PSA for 800 million euros and become the largest shareholder of the company.
This marks the first time that Chinese auto companies have strategically entered into multinational car companies, and Dongfeng has taken a big step toward internationalization. For the Chinese auto industry, which has been growing up through the introduction of foreign investment, Dongfeng's strategic alliance with PSA is also a major milestone for Chinese auto companies to accelerate into the global automotive industry chain.
Three parallel shareholders hold 14% each
Dongfeng has officially signed a Memorandum of Understanding (MOU) through its H-share listed company, Dongfeng Motor Group, with the French government, the holding company of the Peugeot family, and PSA parties. According to the memorandum of understanding, the Dongfeng Motor Group and the French government intend to inject approximately 800 million euros into shares of PSA, and the holding companies of the Peugeot family will also participate in the capital increase. After the transaction is completed, Dongfeng, the French government and the holding company of the Peugeot family will become the largest shareholder of PSA. The three parties will hold approximately 14% of the shares.
Dongfeng said that this shareholding PSA marks the first time that Chinese auto companies have strategically acquired shares in world-famous automotive companies. This is also a strong cooperation between China’s leading auto companies in the world’s largest and fastest-growing auto market and international multinational auto groups. It is a landmark for Chinese auto companies to “go global†and actively participate in international competition. According to the person in charge of the Ministry of Industry and Information Technology, “The Dongfeng Company's move toward the international market is the normal decision-making of the company in the market and it is the internal needs of the company.â€
PSA has established a joint venture with China Dongfeng Motor in China for more than 20 years. However, in Europe, the second-largest automobile manufacturer in recent years has fallen into a huge loss in the context of the downturn in the European market, and has sought the help of the Chinese brothers. Liu Weidong, deputy general manager of Dongfeng Motor Co., Ltd., introduced that as early as the first half of last year, Dongfeng had already sent information to the PSA to hope to invest in shares. “Xu Zong and Zhu Zong (Dongfeng Chairman Xu Ping, General Manager Zhu Fushou) have repeatedly arranged for me to tell PSA that for Dongfeng, when any of the partners is in the most difficult time, it’s not the icing on the cake to be a brother. It must be Give charcoal in the snow."
Dongfeng eventually got his wish. From the perspective of PSA, the introduction of China’s strategic investors, in addition to the introduction of funds, should also focus on the in-depth development of China as a global market. However, Dongfeng ultimately holds only 14% of the equity, not 30% of the original rumor. The final entry of the French government has also been interpreted by the outside world as a consideration of the French side in order to maintain its lead over PSA. This pattern of "three monks carrying water and drinking" in parallel may also reduce Dongfeng's future influence on PSA and may result in inefficient decision-making.
Liu Weidong explained that the shareholders of all parties will implement joint decision-making management in the entire value chain of technology development, procurement, manufacturing, and marketing of PSA. However, the PSA's three major shareholders have different key points. The French government has contributed more to the “relief plan†and will not insert the management of the company from the board of directors and the board of supervisors. Dongfeng focuses more on technology and PSA development in Asia and China.
However, there are also reports that the memorandum stipulates that "all three parties can not increase shares within ten years," and "the future PSA 75% of research and development must remain in France, 1 million production also in France." This all adds to the outside world's concern that the East Wind simply returned to the "savior". It may only have the name of a major shareholder and no actual right to speak.
"We should not regard France as an adversary, but we should treat the three major shareholders as three resources. If three resources support it, why can't we do it?" said Zhu Fushou. In the past few years, Dongfeng has been accelerating its development through synergistic internal and external resources, and its shareholding in PSA is also a reflection of this kind of collaborative thinking. Zhu Fushou said, "PSA believes that the annual effect is 400 million euros. The cooperation between the two sides is absolutely win-win and has synergistic effects."
As for the risk of loss in the stake in PSA, Zhu Fushou believes that the current share price of PSA is 12.5 euros, while Dongfeng’s share price is 7.5 euros, which is about 40% discount. "I don't particularly think that there is an inherent risk of this 6 billion investment."
Dong Yang, secretary general of the China Association of Automobile Manufacturers, believes that Dongfeng does not seek absolute control over PSA. Although China's large auto companies such as Dongfeng are enjoying a good momentum of development and have accumulated a certain amount of international cooperation experience, there is still a long way to go before a well-controlled international company such as Peugeot Citroën. Therefore, proper capitalization becomes a major shareholder, and it is the best choice for it to have sufficient influence and participation.
In any case, Dongfeng's strategic alliance with PSA after SAIC defeated Ssangyong and Geely's experience in purchasing Volvo was another major milestone for Chinese auto companies to accelerate into the global automotive industry chain.
Taking Dragon Motors to Lead Asian Strategy
Of course, the more important consideration for Dongfeng’s strategic stake in PSA should be to integrate high-quality resources for its own corporate and brand development and promote international development, not only to expect dividends. "The east wind is not to be the savior of a multinational company, but it is to build a strong enterprise through its shareholding," said Zhang Zhiyong, an auto analyst.
In the absence of dominant discourse power, how does Dongfeng ensure the sharing of core technologies such as technology? According to reports, based on the consensus reached, Dongfeng and PSA will further deepen their global value chain cooperation. The cooperation plan includes the establishment of a full-value chain R&D center in China, commitment to the joint development of new automotive technologies and new products, mainly providing research and development services for Dongfeng, PSA, and Shenlong Motors; both parties establishing an overseas sales company responsible for PSA and Shenlong. The automotive company's products in Asia, especially ASEAN's sales and service business, and in other overseas markets to coordinate.
"Dongfeng's shareholding in PSA is a full-value-chain cooperation. It is not a single capital cooperation in the past." Zhu Fushou said that on the surface, it seems that capital has become a shareholder, but in fact it is from research and development to manufacturing, to research and development, and to procurement. All-round cooperation. Future intellectual property rights in product development will be shared. "This has never been in the past."
Shenlong Motors will remain the most important link between Dongfeng and PSA and will be the main body of PSA and Dongfeng to open up the Asian market. According to Liu Weidong, the biggest difference between Shenlong's joint venture contract and other joint venture companies' contracts was that it was marked as "export oriented". "Why Dragons can only be sold in China? Why can't we expand into Asia and hand over all of Asia's production, supply and sales to Shenlong? Therefore, we propose that Asia will hand over Shenlong in the future and it is now the first ASEAN business."
Dongfeng’s own passenger car business is also expected to benefit from its alliance with PSA. Unlike other pure joint venture companies, Dongfeng “Shuangfeiyan†own brand, which has already been introduced into Shenlong, will be able to obtain more substantial support and solve the problem of relying on the joint venture to develop the Chinese brand's dream.
"Undoubtedly, this time we cooperated with PSA. We are definitely not entirely for technology." Liu Weidong emphasized that "although technical cooperation is very important to us, the biggest objective of Dongfeng is still the synergy effect."
At the same time, Dongfeng still focuses on improving its technical strength. Two days after PSA was handed in, Dongfeng announced the launch of the Phase II capacity building project of the Technical Center. The project has a total investment of 2 billion yuan, and is expected to be put into use in 2016. It will strengthen the research and development support of Dongfeng's own-brand passenger vehicles.
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