Renault seals $1.3 billion deal with China

A $1.3 billion joint venture between iconic French carmaker Renault and Chinese firm Dongfeng has finally been approved by Beijing, Dongfeng announced on Thursday, as France's Prime Minister arrived in the country for a five-day visit.

Renault seals $1.3 billion deal with China
A $1.3 billion joint venture between iconic French carmaker Renault and Chinese firm Dongfeng has finally been approved by Beijing. Photo: Ed Jones/AFP

The deal was announced as French Prime Minister Jean-Marc Ayrault arrived in China for a five-day visit expected to be dominated by trade issues.

Analysts said it was probably a move by the Renault-Nissan alliance to secure its position in China, where Japanese brands often fall victim to fiery nationalism when ties between Beijing and Tokyo turn sour.

Renault and Dongfeng will each have a 50 percent share in the new company, the Chinese firm said, adding the government had approved the deal and "the production of 150,000 multiple purpose vehicles and engines per year".

The two will invest a total of 7.8 billion yuan ($1.3 billion) in the joint venture, which will be based in Wuhan in the central province of Hubei, said Dongfeng, China's second-biggest carmaker.

Renault is Nissan's largest shareholder, with a 43.4 percent stake, while Japan's number two automaker has around 15 percent of the French company.

"Given the prospects for Japanese brands in China, Renault and Nissan probably want to have two brands here to consolidate their foothold," John Zeng, an analyst with Shanghai-based consultant firm LMC Automotive, told AFP.

"The Nissan brand has easily been affected when China-Japan relations have had problems," he said.

Nissan, which operates in China in a partnership with Dongfeng, depends on the country for about one-quarter of its global sales.

It took a huge hit last year when a Tokyo-Beijing territorial dispute set off sometimes violent demonstrations in China and a consumer boycott of Japanese brands.

It has since been trying to claw its way back to a previous 7.7 percent market share.

The project with Renault has been a decade in the making, after a previous unsuccessful joint venture by the French firm in China.

Renault began operations with China Space Sanjiang Group in 1993 to produce the Traffic minibus, but production stopped in 2003. Dongfeng and Renault have
been in talks since then.

The company has so far trailed rivals such as US auto giant General Motors and Volkswagen of Germany, which have both been running multiple joint ventures in China for decades.

General Motors sold 2.81 million units in China last year, up 11 percent from 2011, while Volkswagen's sales jumped 25 percent on year to 2.84 million

Auto sales in China rose 4.3 percent year-on-year in 2012 to 19.31 million units, hit by limits on numbers imposed by some cities to ease traffic congestion and tackle pollution.

But a report by the consultancy McKinsey predicted last year that the country's passenger car market would grow eight percent annually to 22 million units by 2020.

Dongfeng has previously been reported to be negotiating to buy a stake in another French car firm, PSA Peugeot Citroen, with which it already has a joint venture.

"Through entering into the joint venture contract with Renault SA and the establishment of the joint venture, the overall competitiveness, brand value and technical strength and profitability of (Dongfeng) will be enhanced," the Chinese firm said.

Each company will appoint four of the eight directors of the joint venture which aims to sell 150,000 cars a year, with production to be increased "according to market needs", Dongfeng said, including vehicles using alternative energy.

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France ready to cut Renault stake to shore up Nissan partnership: minister

France is ready to consider cutting its stake in Renault in the interests of consolidating the automaker's alliance with Nissan, Finance Minister Bruno Le Maire said on Saturday.

France ready to cut Renault stake to shore up Nissan partnership: minister
A Renault employee works at the automaker's factory in Maubeuge, northern France. File photo: Ludovic MARIN / AFP
He was speaking in Japan after Italian-US carmaker Fiat Chrysler pulled the plug on its proposed merger with Renault, saying negotiations had become “unreasonable” due to political resistance in Paris.
In an interview with AFP on the sidelines of the G20 finance ministers meeting in Japan, Le Maire said Paris might consider reducing the state's 15-percent stake in Renault if it led to a “more solid” alliance between the Japanese and French firms.
“We can reduce the state's stake in Renault's capital. This is not a problem as long as, at the end of the process, we have a more solid auto sector and a more solid alliance between the two great car manufacturers Nissan and Renault,” he told AFP.
Last week, FCA stunned the auto world with a proposed “merger of equals” with Renault that would — together with Renault's Japanese partners Nissan and Mitsubishi Motors — create a car giant spanning the globe. The combined group would have been by far the world's biggest, with total sales of some 15 million vehicles, compared to both Volkswagen and Toyota, which sell around 10.6 million apiece.
But the deal collapsed suddenly on Thursday, with FCA laying the blame at the door of Paris. 
“It has become clear that the political conditions in France do not currently exist for such a combination to proceed successfully,” FCA said in a statement.
Le Maire said Renault should concentrate on forging closer ties with its Japanese partner Nissan before seeking other alliances.
Things need to be done “in the right order…. First the alliance (between Nissan and Renault) should be consolidated and then consolidation (more generally) and not one before the other.”
“Otherwise, everything risks collapsing like a house of cards,” he warned.
The minister said it would be up to the bosses of Renault and Nissan to decide how to push the alliance forward as ties between the two firms have been strained after the shock arrest of former boss Carlos Ghosn.
Renault is pushing for a full merger between the pair but there is deep scepticism of the plan at Nissan.
There were varied reactions from the French unions Saturday.
“The government is behaving like the agent of the big shareholders, favouring short-term profit to the detriment of the interests of the country,” said Fabien Gache, of the CGT union.
Cutting the state's share in Renault was abandoning its responsibility in the country's auto industry, he argued.
Franck Daout of the CFDT union said it backed a three-way alliance between Renault, Nissan and Japan's Mitsubishi — but not one between Nissan and Renault until the alliance had reached a “safe and sustainable maturity”.