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Peugeot-GM Alliance Has Modest Initial Aims

No Plans For Joint Action On Plant Closures
French See Deal As Helping Its Global Efforts

Americans Concentrate On Fixing Opel

Questions surrounding the alliance between Peugeot-Citroen and General Motors buzzed around the Geneva Car Show, but after presentations to the media there were still many aspects of the deal which remained unconvincing.

The participants seem to have different motives for getting together.

PSA Peugeot Chairman Philippe Varin sees the deal as a global alliance, from which it can leverage the huge scale provided by GM to cut its costs by platform and model sharing, and end its debilitating reliance on a weak and cutthroat European market. The first joint models are expected by 2016. GM is primarily concerned with finally staunching the flow of red ink in Europe where it has lost money for the last 12 years, and is expected to go on losing money for the next two or three years.

One of the specific aims of the alliance – to save $2 billion out of a total annual spending budget of $125 billion – seems modest, particularly when you reckon that GM Europe’s half share would only compensate for losses some expect in 2012.

One area of action specifically excluded was any joint action to shut down excess capacity. Peugeot and GM will be looking at capacity problems separately.

“Make no mistake. This alliance is not set up to fix anybody’s capacity issues,” General Motors vice-president and CEO of Adam Opel AG Karl-Friedrich Stracke told reporters.

“It’s very clear. It’s an alliance between PSA and GM – global,” Automotive News quoted Peugeot’s Varin as saying.

There seems to a lukewarm consensus that the deal may be positive for all concerned, after recognising the dismal failure of previous alliances like GM/Fiat, Daimler/Chrysler, BMW/Rover, with hopes that it might end up like Renault/Nissan.

The Financial Times of London’s Lex column thought Peugeot had earned a big plus from GM’s €300 million purchase of a seven per cent stake in Peugeot, which showed the Peugeot family’s seriousness about rescuing the company.

“The arrangement has helped Peugeot establish some financial stability. The Peugeot family’s willingness to accept a modest dilution may also be positive, although in retaining almost 38 per cent of the voting rights it has given up little. But the risks are the time it will take for synergies to follow and, above all, uncertainty over whether the alliance will ultimately help in reducing European overcapacity,” Lex said.

Another reluctant endorsement came from U.S. ratings agency Moody’s Investors Service.

“We view the alliance as a modestly constructive undertaking that has the potential to improve the cost position of each company. However, the alliance will have a minimal effect on the financial position, operating performance and credit profile of either company over the next couple of years,” said Moody’s Senior VP Falk Frey.

Neil Winton – March 18, 2012

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