Peugeot Citroën eyes tie-up with Mitsubishi

PSA Peugeot Citroën is in talks with Japan's Mitsubishi Motors Company in a move that could lead to full-blown "strategic alliance".

Following Fiat's takeover of Chrysler earlier in the year, the discussions are evidence of further consolidation in an industry decimated by the global downturn.

The two companies already collaborate on the development of 4x4s and clean technology, particularly electric vehicles, and have a joint venture in Russia. The relationship could now be extended in a deal that "could lead to a strategic partnership", Peugeot said yesterday.

The French group's stake could come from a block of privately issued shares representing as much as half of the Japanese company's stock, according to Tokyo press.

The tie-up would give Peugeot the global reach it needs, including welcome footholds in both the fast-growing Asian markets and in the US. For Mitsubishi, it looks like a lifeline with the company's finances in a parlous state. It recorded a ¥32.5bn (£222m) operating loss in the first half of the financial year, and a 53 per cent drop in revenues, to ¥573bn.

But this is not the first time it has attempted a tie-up. In 2000, DaimlerChrysler, the German group, took a supposedly controlling stake in Mitsubishi Motors, also with a view to consolidating its global reach. What followed was more than five years of frustration as Mitsubishi repeatedly blocked efforts to make the necessary changes to the business. The partnership was finally dissolved in late 2005.

According to Garel Rhys, a car industry expert at Cardiff Business School's Centre for Automotive Research, Peugeot will need to be on its guard. "Daimler walked away because it realised that Mitsubishi was not prepared to take the necessary medicine," he said. "This time around, the French will have to be very firm because in Japan there are ways that apparent control doesn't quite work out that way."