Family to take back seat after Peugeot tie-up with Chinese

Deal with Dongfeng Motor Group gives French car maker €3bn to invest

The struggling French car maker Peugeot-Citroën ended two centuries of family control yesterday and entered a strategic and financial partnership with the Chinese state-owned Dongfeng Motor Group.

The deal, which will be formally announced today, gives PSA Peugeot-Citroën an extra €3bn (£2.5bn) in capital to invest in new cars and factories and survive the loss of French state aid from next year.

Dongfeng and the French state will each invest €800m, giving them 14 per cent stakes in the company, on equal footing with the Peugeot family. Thierry Peugeot is expected to announce today that he will relinquish the chairmanship of the board – ending family control, but not family involvement, in a company which began in 1810 as a manufacturer of tools and coffee-grinders.

The deal with China's second largest car maker, after months of negotiations, split the Peugeot family and has been widely criticised in France. Peugeot, which swallowed Citroën 40 years ago, will remain independent but is expected to co-operate with Dongfeng on some product lines and in a drive to penetrate the Asian market.

The Peugeot family has previously refused mergers or strategic partnerships that would end family control. A lack of investment funds and economies of scale in have been blamed for a crash in Peugeot-Citroën sales in recent years – down to an estimated 2,820,000 in 2013, compared with 3,600,000 in 2010.

The company is now only the ninth biggest car maker in the world, far behind Renault, whose partnerships with Nissan and Dacia make it the world's No 4 car maker, with 7,500,000 sales.

Bernard Jullien of Gerpisa, an automotive research company, said: "For 15 years, the Peugeot family wanted to preserve its independence at all costs and refused all but limited alliances. These days, it is estimated that you have to produce at least 6,000,000 cars a years to gain the economies of scale you need to compete."

The Dongfeng partnership would be responsible for about 5,300,000 car sales a year. The Chinese company is reported, however, to have ambitious plans to co-operate with Peugeot in new product lines, including a "basic" car to rival Renault's Logan in sales to developing countries.

Mr Jullien said Dongfeng provided "a virtually unlimited access to Chinese state funds. There is no pressure for short-term profitability."

French car unions have expressed worries about Peugeot's future manufacturing in France. The French press says the group plans to build a factory for small, cheaper cars in North Africa. French factories would switch to making only upmarket and bigger cars.