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Published: Thursday, 3/1/2012

GM OKs Peugeot pact, plans for stake

NEW YORK TIMES

DETROIT -- General Motors on Wednesday said it had agreed to form a "long-term and broad-scale" agreement with the French automaker PSA Peugeot Citroen, including the purchase of a 7 percent stake in the company, to share vehicle architectures, and jointly buy parts from suppliers.

The companies, which have been independently working to restructure their money-losing European operations, said they expected the partnership to produce limited benefits in the first two years but annual savings of about $1 billion for each carmaker within five years. The alliance is expected to be operational by the second half of this year, GM said.

After the purchase, GM will be Peugeot's second-largest shareholder after the Peugeot family.

"This partnership brings tremendous opportunity for our two companies," GM's chief executive, Daniel Akerson, said in a statement. "The alliance synergies, in addition to our independent plans, position GM for long-term sustainable profitability in Europe."

GM said it would acquire its shares of Peugeot as part of a $1-billion-dollar rights offering, underwritten by a syndicate of banks and including an investment by the Peugeot family aimed at instilling confidence in the alliance's success.

The companies said they planned to collaborate first on small and midsize cars, crossovers, and so-called multipurpose vehicles. They also are considering creating an architecture for low-emission vehicles. Vehicles built on the jointly developed architectures are expected to go on sale by 2016, they said.

GM and Peugeot will continue to market and sell their vehicles independently.

"Just to be clear, this is an alliance -- not a merger," Mr. Akerson said on a conference call with analysts and reporters. "This does not replace either company's ongoing independent efforts to return their European operations to sustainable profitability."

Both automakers are expected to cut jobs and potentially close plants in Europe as they work to reduce production capacity to a more manageable level. Peugeot's chairman, Philippe Varin, said the alliance is not intended to address either company's overcapacity problems.

The companies said they have combined annual purchasing volumes of $125 billion, with GM accounting for about three-quarters of that amount.

"This scale is unmatched," Mr. Varin, said. "Today is just a start. We'll continue to look for opportunity to provide value."

Analysts and GM investors have expressed skepticism in recent days toward the potential of an alliance with Peugeot, as well as toward GM's restructuring prospects in Europe. Adam Jonas, an analyst with Morgan Stanley, last week said GM's European operations, which lost $747 million in 2011, had become the biggest threat to the company's financial strength.

"Synergies between GM and PSA could ultimately run into billions, but would take years to deliver and do not come without significant execution risk," Mr. Jonas wrote in a report to clients. "Any restructuring of GM Europe would require cash resources from Detroit."

GM has a poor track record of working with other automakers in Europe, though its joint ventures in China have produced substantial profits. GM paid $2 billion in 2005 to sever a five-year-old partnership with Fiat, which went on to take over Chrysler in 2009.

Mr. Akerson said the Peugeot partnership was different from the Fiat tie-up because it was more balanced between the participants and created concrete synergies. With Fiat, the deal included a put option that acted like "a loaded gun at the head of General Motors," he said, whereas the Peugeot deal is more straightforward. Mr. Akerson also said the lessons learned from past failed alliances would help this one succeed.

Before completing the alliance, the companies must obtain regulatory approval.



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