Japan's Mitsubishi Motors and France's Peugeot Citroen yesterday scrapped an ambitious capital tie-up that would have created the world's sixth-largest auto alliance, after reports of financial discord.
The companies in December confirmed they had discussed strengthening ties and a possible financial alliance after media in Japan reported Peugeot was planning to buy a 30 to 50 per cent stake in the debt-laden Japanese maker.
But yesterday they said a tie-up "was not appropriate in the current circumstances", a day after PSA Peugeot chief Philippe Varin and Mitsubishi Motors president Osamu Masuko met at the Geneva Motor Show.
When the talks were announced in December, analysts said such a deal would give Peugeot access to Mitsubishi's advanced electric car systems and open the Japanese firm's sales networks in Asian markets and the United States.
However, in January the French business newspaper Les Echos reported that discussions were stuck on disagreement over the valuation of the two groups because Mitsubishi carried a higher stock market valuation than PSA.
Despite the breakdown, Peugeot and Mitsubishi, maker of the i-MiEV electric city car, pledged to "broaden the current successful cooperation of the two companies", a joint statement said. Both companies have already agreed on other forms of cooperation and plan to launch the i-MiEV under the Peugeot brand in Europe this year.
They are also building a joint sports utility vehicle plant in Russia.
"We will continue working with Peugeot on the new Russian factory, which we are jointly constructing," said Mitsubishi spokesman Shigeru Jibiki.
"We plan to start full production there in 2012, when Peugeot will kick off its output in April and Mitsubishi in October."
Mamoru Kato, an auto analyst at Tokai Tokyo Research Centre, said a capital alliance between the car makers is still possible in the future.
"The statement only ruled out a capital alliance at this time," Mr Kato said.
"It's just not the right timing as the end-March accounting book closing approaches for Mitsubishi Motors, which needs to have specific figures for negotiations," he said.
"With global tie-ups and mergers going on in the auto industry, the two companies' policy of joining hands firmly will remain intact," Mr Kato said, adding both need to seek higher sales volumes.
Japan's fourth-biggest automaker Mitsubishi Motors last month announced a net loss of 25.7 billion yen for the nine months to December, hit by the economic downturn and a stronger yen.
For the full financial year, Mitsubishi Motors kept unchanged its forecasts for a net profit of five billion yen.