Mitsubishi and Peugeot Talking Tie-Up

TOKYO — Mitsubishi Motors of Japan is reportedly discussing a high-level tie-up with the PSA Peugeot Citroën group of France as the shakeout in the world auto industry continues apace. This dramatic new alliance could see the French company take a majority 30-50 percent shareholding in struggling Mitsubishi.

The story, broken by Japan's Nikkei news service, describes negotiations on a deal as in the "final stages," with PSA apparently seeking a stake of at least 50 percent. Such a deal would, on the face of it, suit both parties pretty well.

Mitsubishi, it's believed, needs both cash and a partner to develop new models and simply to survive the harsh economic environment. PSA is attracted by Mitsubishi's work with eco-friendly electric cars and SUVs and its broad production spread in the world's emerging markets.

The two sides have discussed tie-ups before, but PSA had earlier ruled out any capital stake in Mitsubishi, preferring to take it on a project-by-project basis.

The unforgiving economic crisis has clearly shifted those goalposts, however, and in Tokyo it's said the giant Mitsubishi Group, which has basically bankrolled Mitsubishi Motors since its alliance with Germany's Daimler group went bust in 2004, is believed to be anxious to alleviate that financial burden and welcomes the PSA move.

The likely plan is for Mitsubishi reportedly to issue the equivalent of $2.2 billion to $3.4 billion in new shares, which would give PSA a stake of 30-50 percent in Mitsubishi.

While analysts have greeted the news and Mitsubishi stock has shot up in recognition, a Mitsubishi Motors spokesman in Tokyo played down the report, saying: "Mitsubishi and PSA have collaborated on several projects, including the Outlander and i-MiEV electric car. It's true we are looking to deepen the partnership. Discussions have been talking place on many levels. However, there is nothing to be announced at this moment."

Inside Line says: It's looking as though there will be something to be announced soon. — Peter Nunn, Correspondent