Peugeot and GM Discuss Potential Alliance

According to comments from French labor minister Xavier Bertrand last night, French automaker PSA Peugeot Citröen is in the midst of talks with GM on a far-reaching alliance.  While the outcome of the talks is unlikely to include any cross-shareholding arrangements (such as Renault and Nissan have, or (ahem) Volkswagen and Suzuki do), it may help both companies deal with serious problems in Europe.

When GM announced its 2011 financial results a few weeks ago, they were the best (in terms of net income) that the company has ever reported in its history.  Yet there was a major black mark (or more specifically, a major red mark) in those results.  GM Europe continues to struggle, with its European subsidiary losing $747 million before taxes and interest in 2011, and the anchor that GM Europe represents has certainly been a factor in pulling down GM’s stock price.  GM’s issues in Europe issues stem from overcapacity, high costs, and products that don’t have the pricing power of some competitors such as VW.

Meanwhile, PSA has similar issues with its own operations in Europe, but doesn’t have the global scale that Volkswagen or GM does to offset weakness in its home market.  PSA is Europe’s second largest automaker, and its reliance on Europe sales have cost it dearly, with sales falling 8.8 percent in Europe and 1.5 percent overall, while the global auto industry recovers almost everywhere else.  In contrast, VW’s European sales surged 7.8 percent in 2011.

The tie-up would involve purchasing and production, as well as technology sharing and co-development projects.  If it came to fruition, the alliance could help give both PSA and GM Europe the scale that they need to compete with larger companies.  For instance, PSA sold 1.68 million vehicles in Europe while GM sold 1.17 million.  Combining those two at 2.85 million, and they get closer to VW’s European sales of 3.17 million.

Alliances are not without risk, and few of them seem to work as well as the Renault-Nissan one.  In fact, both PSA and GM have seen generally poor results from past alliances.  GM famously had to pay Fiat $2 billion in 2005 to buy out a put option that would have forced GM to buy Fiat’s auto operations, which were struggling at the time.  GM’s $2 billion helped fund Fiat’s restructuring, and had GM been able to keep its money, it may have staved off bankruptcy a bit longer in 2009.

PSA already has alliances in place with several other automakers, including Toyota, Mitsubishi, Ford, BMW, and Fiat.  Talks to deepen the company’s alliance with Mitsubishi in 2010 did not pan out, so PSA is trying to be cautious with its public statements, mindful that they could set expectations.

Is this going to be enough?  It will help both companies most likely, at least in the short term.  However, there is still too much capacity – meaning too many plants and too many workers – in Europe to support sales volumes in place today.  Presumably, a manufacturing alliance between the companies would allow them to reduce capacity – yet that’s much easier said than done in Europe.  With Europe teetering on the edge of recession, it seems unlikely that volumes will remain even at today’s levels for the next few years.

Curiously enough, what’s helping the US auto industry today versus Europe is the fact that the US industry suffered round after round of painful layoffs and plant closings.  Those actions were devastating to communities and to individuals.  Yet those tough choices allowed automakers to improve their margins, and therefore freed up capital to invest in new models, which improves sales.  Now we are at the point in the US that the auto industry is adding jobs, but it’s hard to imagine that happening in Europe anytime soon.

There’s much more to come on this – not just on Peugeot and GM, but on the larger European auto industry as well – in the coming months.

Author: Chris Haak

Chris is Autosavant's Managing Editor. He has a lifelong love of everything automotive, having grown up as the son of a car dealer. A married father of two sons, Chris is also in the process of indoctrinating them into the world of cars and trucks.

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1 Comment

  1. I would love to be able to buy a new Puegeot in the United States, so I hope something comes out of this. Would love that.

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