There is no official confirmation yet but it is perhaps only a matter of time before PSA Peugeot Citroen and Dongfeng of China come together in a new global alliance.

For weeks now, the Western media has been abuzz with this partnership slated to be sealed in the coming months. When it does happen, it will mark yet another giant step forward by China in its quest to become a global automobile powerhouse.

The structure being discussed is an equity alliance between the French Government and Dongfeng, which would infuse much-needed funds into the beleaguered PSA.

There is tremendous logic in this business model, should it eventually work out on these lines. PSA is doing well in China with sales of over four lakh vehicles during January-September 2013. The company’s business beyond Europe accounted for 42 per cent of sales (876,000 of a little over two million units) during this nine-month period. Russia and Latin America are a critical part of this global strategy but, clearly, the biggest growth potential is in China.

In this backdrop, it only makes sense for PSA to team up with an ally with whom it is already manufacturing cars (in China). It is also, perhaps, the best bet for the company to stay afloat especially when Europe, its key market, is not out of the woods yet. Today, practically every American and European carmaker is looking to China for the future, a list that includes Jaguar Land Rover, Volkswagen, Ford, GM, Renault and Fiat.

Last year, PSA announced that it was teaming up with General Motors to bounce back to profitability in Europe. By this time, the French carmaker had shelved its India plans since it just could not afford fresh investments at a time when nothing was going right in Europe.

On Wednesday, PSA made known during its third quarterly results that the new small car plan with GM was under review which pretty much conveyed that nothing much could be expected. Within auto industry circles, the message was loud and clear: GM and PSA were heading for a split. By this time, reports of Dongfeng as a potential ally were already doing the rounds.

From China’s point of view, it is already sitting pretty as the world’s largest producer of cars but, going forward, would prefer associations with top brands. Geely has already bought out Volvo cars while SAIC Motor Corp is a critical ally for General Motors.

The GM-SAIC combine is not only successful in China but is keen on taking this partnership to other parts of the world. India was one such destination when GM was literally down and out during the 2009 global crisis. The American automaker turned to SAIC for support and an equity alliance was forged with the objective of launching vehicles in India and, thereon, across Asia-Pacific.

Will PSA and its new ally try out something similar once their partnership is sealed in the coming weeks? Like its Chinese counterpart SAIC, Dongfeng will be keen on establishing a presence in other parts of the world. And, perhaps, this could even include India where PSA was among the earliest entrants in the 1990s and the first to depart a couple of years later.

The French government will, of course, be keen to drive home the message that PSA will remain a homegrown company. Yet, there is no telling what will happen tomorrow, especially when Europe is still not showing any signs of a quick revival and all the growth is happening in Asia, especially China.

Where does this leave Indian carmakers? Tata Motors has JLR in its kitty while the Mahindras own SsangYong of South Korea. Is this enough to keep pace with the Chinese juggernaut? For the moment, the aces are clearly loaded in the latter’s favour.

>murali.gopalan@thehindu.co.in

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