29 September 1998

In another move towards consolidation in the car industry France's PSA Peugeot Citroen and US giant Ford Motor Co. said they would join forces to develop diesel engines.

It was the first time the French producer has linked up with a non-European player and reflected the need for manufacturers to cut production costs in the highly competitive, overcrowded auto market. "This is our response to the challenge of globalization," PSA Peugeot Citroen chairman Jean-Martin Folz told a news conference at the Paris Motor Show.

Although sales in Europe and the United States are strong, the financial crisis in emerging markets has sent a shiver through the industry, driving the question of consolidation to the top of the sector agenda. A merger announced in May between Germany's Daimler-Benz AG and US manufacturer Chrysler Corp has sparked speculation that other car makers would have to combine, or at least forge joint production ventures.

It was speculated that Ford, the US and world number two auto company in terms of production, might be looking to increase existing cooperation agreements with Europe's number one car company, Volkswagen AG. But Ford dismissed the rumors and instead Peugeot announced that it was forging a first tie up with Ford.

The two partners will share development costs for the small diesel engines estimated at around two billion francs ($333 million), the Peugeot group said.

The French firm is a leading producer of diesel engines, manufacturing around one million units a year. The new series, to be be produced in the Peugeot's Douvrin plant in France, should come to the market in two and a half years.

The Peugeot group has been cooperating for decades with its partner Renault in gearbox and motor production, and with Fiat, with whom it produces minivans and light commercial vehicles.

Source: Reuters