Weaker euro boosts PSA’s and VW’s joint ventures in China

Article by Christian A., on August 25, 2010

The weakening euro is a boon for PSA/Peugeot-Citroen and Volkswagen AG's joint ventures in China as this lowers the cost of the imported components from Europe, according to analysts from Nomura Holdings Inc. Yankun Hou, one of those analysts, said that the biggest beneficiary to this windfall would be Dongfeng PSA, a partnership between France's Peugeot and Hubei-based Dongfeng Motor Group Co.

A report from Hou and Ming Xu (a fellow analyst) came out earlier this week, indicating that a 15% drop in the euro could raise Dongfeng PSA's earnings by up to 5% or 250 million yuan ($36.6 million).

In a phone interview, Hou (who is based in Hong Kong) said that importing components increases profit. Because of worries that a government debt crisis will spread from Greece, the euro dropped 14% compared to the US dollar this year and hit a four-year low on May 19.

The decline of the euro makes European carmakers and auto-parts suppliers more competitive in China where the yuan has been pegged at about 6.83 to the US dollar for nearly two years.

The pressure is also rising for China to revalue its currency. Hou explained that European auto joint ventures in China are more reliant on imported car parts than the rest in the industry. Hou added that China has yet to reach the economical scale to make high-tech components.

Topics: vw, psa, china

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