Peugeot Citroen signs rescue deal with Dongfeng Motors and French government

Europe’s second-largest carmaker PSA Peugeot Citroen has signed a rescue deal with China’s Dongfeng Motors and the French government that will see its founding family cede control of the company.

Dongfeng Motors and the French government will each invest about 800 million euros in return for 14% stakes.

Another 1.4 billion euros will be raised from existing investors in Peugeot.

The deal is still subject to a shareholder vote but will provide much-needed cash to keep Peugeot afloat after government guarantees expire.

Should the deal be approved, the Peugeot family’s 25.4% stake will be diluted to 14%, matching that of the French government and Dongfeng Motors.

Peugeot also announced its latest financial results on Wednesday, warning that it may face losses until 2016.

The carmaker said its net loss narrowed to 2.32 billion euros last year, compared to a 5 billion-euro loss in 2012.

Sales also fell by 2.4% from a year earlier to 54.1 billion euros, due to tepid demand for new cars in Europe.

Reports say the deal is likely to be formally signed in March.

In a statement to the Hong Kong stock exchange, Dongfeng said the deal is meant to “expand and deepen their current cooperation” with Peugeot.

It also said the venture would “strengthen overseas cooperation to achieve the objective of selling 1.5 million vehicles under the Dongfeng, Peugeot SA and Citroën brands per year starting from 2020”.

Peugeot already has a joint venture with Dongfeng, which is one of China’s newer car brands and is known for its heavy trucks and “Fengshen” line of vehicles.

However, the new arrangement is expected to bring an increase in production and a new research and development centre.

Dongfeng is also expected to promote the Peugeot brand in the fast-growing car markets in South East Asia.

The deal also makes Dongfeng the latest Chinese carmaker to buy into a Western competitor.

Peugeot was founded 200 years ago and is one of France’s oldest industrial dynasties.

The company began in 1810 as a maker of tools and coffee mills, which are still marketed under its name.

However, it has faced financial difficulties and shrinking market share over the last few years.

Peugeot signed an investment deal with General Motors in 2012, but the US carmaker offloaded its stake in the loss-making company in December.