PARIS - An agreement between PSA/Peugeot-Citroen SA and Ford Motor Co. to make large diesel engines will help both companies meet tougher environmental regulations - and stiffer competition from German rivals.
Over the next decade, the two partners will spend $1 billion to design V-6 and V-8 direct-injection common-rail diesel engines.
Peugeot and Ford will share design, development and manufacturing responsibilities. The two companies also will operate a joint factory in Europe.
Both Ford and Peugeot need big, modern diesel engines to cope with broadened model ranges and tougher environmental regulations. They also must fight increasingly aggressive German competitors such as Volkswagen, Audi, Mercedes-Benz and BMW.
SECOND DIESEL DEAL
The agreement is the second diesel engine deal between the two groups in just over a year.
Last year, Peugeot and Ford set up a $329 million joint venture to make small-capacity diesel engines. Francaise de Mecanique, a common subsidiary of Peugeot and Renault, will produce 1,500 engines a day at its plant in Douvrin, France.
Analysts in Paris also said Ford could extend the relationship by using Peugeot's high-pressure, direct-injection 2.0- and 2.2-liter engines for the Mondeo and Focus.
'This is a new and very different deal from the joint venture for small diesel engines,' said one source. 'With that earlier project, PSA is the leader in design and manufacturing.'
A top executive with a major European supplier said: 'If you want to impress the Germans, at the very least you need six-cylinder diesels with a capacity of 3.5 to 4.0 liters.'
Peugeot's biggest diesel engine is a common-rail 2.2-liter, 136-hp unit. It will equip the flagship Peugeot 607 next March, and will be made at Peugeot's Tremery plant. The 607 will get a bigger diesel engine in the future, said project manager Michel Lejeune.
Ford's biggest car diesel is the 1.8-liter, 91-hp direct-injection unit that powers the Focus and the Mondeo in Europe.
'The Mondeo's turbodiesel is not its strong point,' admitted one Ford insider. The Ford Galaxy minivan comes with 90-hp and 100-hp direct-injection Volkswagen engines. Ford and Volkswagen are unlikely to make the successors to the Galaxy and Volkswagen Sharan together.
NEEDED: BIG ENGINES
Ford is rumored to be considering whether to replace the Scorpio. But it also will need a big diesel engine for future Volvos - and probably Jaguars.
'We are considering a diesel engine for the future,' said Jaguar's new Chief Executive Jonathan Browning during a recent trip to Paris.
Volvo, bought by Ford early this year, equips its S40 and V40 models with Renault's 1.9-liter direct-injection engine. Volvo's S70, V70 and S80 models use Audi's 2.5-liter, 140-hp diesel. Volvo sold 51,000 diesel cars out of a total of 396,000 units last year.
The Peugeot-Ford deal may bring an end to further close cooperation between Peugeot and Renault, and will be seen as a reaction to the Renault-Nissan alliance.
Renault already has decided to buy a 3.0-liter V-6 direct-injection diesel engine from Isuzu to power the Safrane successor, which will debut next year. That engine will also be used in Opel models.
The next generation likely will be developed with Nissan, which does not have V-6 diesel engines.
However, Peugeot could choose another solution for big gasoline engines. The company is expected to buy a V-8 gasoline engine from Volkswagen or Mercedes-Benz to equip the 607 or a future full-sized Citroen.