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Peugeot unveils writedown; GM backs Dongfeng accord

French carmaker PSA Peugeot Citroen unveiled a €1.1 billion ($1.52 billion) writedown at its ailing overseas operations and won General Motors backing for a tie-up with China’s Dongfeng.

Peugeot’s manufacturing division recorded a €510 million operating loss in the first half. — Bloomberg

Peugeot and GM also lowered savings goals for their scaled-down alliance on Thursday, as the Paris-based carmaker acknowledged it was pursuing a deal with Dongfeng Motor Group underpinned by a capital increase.

Peugeot, one of the carmakers worst hit by the Europe’s economic slump, is cutting jobs and plant capacity to try to halt losses within two years. Peugeot shares fell as much as 8.4 per cent on the writedown and after a source told Reuters the company’s board had approved a draft deal including a 3.5 billion euro capital increase at a 40 per cent discount.

The impairment, following a similar €4.7 billion hit on 2012 earnings, reflects weaker currencies and sales outlooks in Russia and Latin America, Chief Financial Officer Jean-Baptiste de Chatillon told reporters. Peugeot’s plant in Kaluga, Russia is among production investments “whose book value is no longer covered by future cash flows”, Chatillon said on a conference call. “This will impact group operating income.”

Peugeot’s manufacturing division recorded a €510 million operating loss in the first half, before one-off adjustments. The company nonetheless reiterated its 2013 goal of halving last year’s negative 3 billion euro operating cash flow.

Philippe Varin, Peugeot’s outgoing chief executive, has said the French carmaker is exploring a deeper relationship with Dongfeng, its existing partner in a Chinese joint venture.

Discussions with Dongfeng are at “preliminary stage”, with no guarantee that they will conclude successfully, Peugeot said in a separate statement on Thursday. “There is no agreement on the terms of a potential operation.”