Peugeot to acquire Mitsubishi?

Reuters is reporting today that PSA Peugeot-Citroen may take a 30 to 50 percent equity stake in Mitsubishi.

The two manufacturers already have an SUV partnership that gave birth to the Citroen C-Crosser and Peugeot 4007 – versions of Mitsubishi’s Outlander, and they have been collaborating on engine technology. Both manufacturers are relatively isolated players, with just three brands between them – and both are weak in markets where the other is strong, Mitsubishi in Europe and Peugeot in Asia and North America, where PSA has had no presence since 1991.

Mitsubishi’s reputation as a manufacturer is middle-of-the-road, but in the last three years the Japanese OEM has made huge strides in electric vehicle technology, already launching what is arguably the most practical all-electric car on the world market, the iMiEV. Peugeot, which has developed an interesting hybrid system but has little to counter upcoming electrics from rival Renault-Nissan, no doubt sees this tech as a boon.

But that’s not all Peugeot would get.

With Fiat having purchased Chrysler and Rover having gone away, PSA is now the only major OEM with no presence in North America, though Peugeots are sold in fair numbers in Mexico. With the purchase of a giant portion of Mitsubishi, PSA would gain re-entry into North America and a stronger presence in Asia – though Citroen has been doing well in the Chinese market for many years. Mitsubishi is weak in light vehicle diesel technology – one of Peugeot’s specialties and a place where synergies could mean real market gains in Europe and emerging markets.

Looking at the two together, the eight and fifteenth largest manufacturers in the world, a merger would probably put both players in a stronger position. There are, however, significant challenges to the successful union of PSA and Mitsubishi. Mitsubishi has struggled in North America in recent years, though the current product line is improving. Both companies have significant debt loads, but not dangerous levels. Peugeot is also a different kind of company than most manufacturers, because the Peugeot family controls a majority (45%) of the voting rights, and it is not known if they are on board with the acquisition. The family was reportedly very cool to talks about a renewed alliance with Fiat earlier this year (Fiat and PSA have cooperated many times in the past, particular in the van and light truck sectors).

A merger would likely bring new products first to emerging markets, and not an immediate return of French products to U.S. showrooms – although it could happen in the same way as Fiat’s plans for Chryslers based on Fiat platforms to debut in the next couple of years.

To thrive, neither manufacturer can truly afford to stay on the sidelines, and investors helped drive up Mitsubishi’s stock price up by 13.4% on the news. Stay tuned.