GM to take 7% of France's Peugeot in strategic alliance

29th February 2012, Comments 0 comments

Struggling French automaker PSA Peugeot Citroen and US giant General Motors unveiled Wednesday a strategic alliance that will see GM take a seven percent stake in its new partner.

The two companies, who did not reveal whether the deal would lead to job cuts, said the tie-up was a limited one.

"This is an alliance, not a merger," GM chairman and CEO Dan Akerson told a conference call.

The two companies said they were creating "a long-term and broad-scale global strategic alliance that will leverage the combined strengths and capabilities of the two companies."

The agreement, they said in a joint statement, will "contribute to the profitability of both partners and strongly improves their competitiveness in Europe."

GM and Peugeot are to focus on sharing vehicle platforms, components and modules and on creating a global purchasing joint venture for sourcing commodities and other goods and services from suppliers.

As part of the deal, the French firm is to raise about one billion euros ($1.3 billion) through a share sale which will also include an investment from the Peugeot Family Group, the statement said.

"As part of the agreement, which includes no specific provision regarding the governance of PSA Peugeot Citroen, GM plans to acquire a seven percent equity stake in PSA Peugeot Citroen, making it the second largest shareholder," it added.

The Peugeot family said in a statement that it was "firmly convinced of the strategic rationale" of the deal and would buy 150 million euros worth of the new shares.

Cost savings expected from the deal were estimated at about $2 billion annually within about five years, shared evenly between the two companies.

Last year, the French firm, which employs 205,000 people worldwide, sold 3.5 million cars, two-thirds of them in Europe where the market is increasingly under pressure as the economy slows again.

French Industry Minister Eric Besson welcomed the deal as "good news" for jobs, saying he had been assured by Peugeot "that this partnership will be favourable to PSA's employment and presence in France."

French President Nicolas Sarkozy is facing a tough re-election battle in a two-round April-May vote and it had been feared that any announcement of lay-offs could be disastrous for his campaign.

Philippe Varin, chairman of the Peugoet managing board, said the deal did not mean the groups could ignore their production overcapacity.

"We have over-capacities in Europe that are clear for everybody but have to be dealt with by each partner," he told the conference call.

A source close to the matter told Dow Jones Newswires that GM was expecting to make job cuts and potentially close factories at its under-achieving Opel-Vauxhall operations in Europe.

The global partnership comes more than two years after GM was forced to take some $50 billion in rescue aid from the US government in a bankruptcy restructuring in 2009.

The largest US automaker has made a stunning comeback since then. For 2011, GM reported $7.6 billion in net income, breaking the annual record as sales soared in the United States and China, and reclaiming its title as the world's largest automaker from Toyota.

But Europe remains the US automaker's biggest weak spot -- although halved from 2010, GM lost nearly $750 million in Europe in 2011.

The alliance also marks an ideological U-turn for Peugeot, which has traditionally preferred technology cooperation to actual partnerships, with the controlling family keen to conserve the brand's identity.

"They were afraid that adding new blood would dilute the identity," said Bernard Jullien, head of the Gerpisa auto industry research network.

The group already has cooperation agreements with the German firm BMW to build petrol engines, with Fiat and Turkey's Tofas to build light trucks, and with US giant Ford for diesel engines.

PSA also works with the Japanese automaker Mitsubishi to build SUVs and electric cars, with Toyota for small cars and with its historic French rival Renault to build motors and mechanical parts.

Analysts note however that a majority of auto alliances have failed in the past, often because of problems that crop up as company cultures clash.

"Most big alliances, big acquisitions, have failed. Overall, it's not a sector that has the the highest success rate in terms of acquisitions," said Fitch ratings agency analyst Emmanuel Bulle.

© 2012 AFP

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