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Assembly line at the PSA Peugeot Citroen plant in Poissy, near Paris. Peugeot’s core auto division was €497-million in the red in the second half last year. (Benoit Tessier/Reuters/Benoit Tessier/Reuters)
Assembly line at the PSA Peugeot Citroen plant in Poissy, near Paris. Peugeot’s core auto division was €497-million in the red in the second half last year. (Benoit Tessier/Reuters/Benoit Tessier/Reuters)

GM, Peugeot alliance targets annual $2-billion in savings Add to ...

General Motors Co. and PSA Peugeot Citroën will seek to squeeze a joint $2-billion (U.S.) annually from a global platforms-to-purchasing alliance, but the savings will not be fully realized for five years, the auto makers said on Wednesday.

The deal calls for GM to buy into a roughly €1-billion ($1.34 billion) capital increase by Peugeot, becoming the struggling French auto maker’s No. 2 shareholder as part of a broad industrial alliance, the companies said on Wednesday.

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GM will take a 7-per-cent stake in Peugeot, Europe’s second-biggest auto maker, and the two companies will pool research and development, vehicle platforms and technologies, the auto makers said.

“The alliance synergies, in addition to our independent plans, position GM for long-term sustainable profitability in Europe,” GM chief executive officer Dan Akerson said in a statement.

The alliance will focus on small and mid-size passenger cars and crossovers, the companies said. The statement did not address any possible plant closings or job cuts.

The cost gains from the deal, which will coincide with the joint development of new vehicle platforms, will be limited in the first two years of the deal but will eventually total $2-billion a year, split about equally, the companies said.

The alliance, which comes as Peugeot and GM’s Opel unit grapple with slow sales and overcapacity in Europe, has met with widespread investor skepticism as the outlines of the transaction leaked out in recent days. Peugeot shares closed 2.1 per cent lower, while GM’S were up 0.5 per cent.

“PSA needs GM, but GM doesn’t need PSA,” said Matthew Stover, an analyst with New York-based Guggenheim Securities. “It’s hard for me to figure out how this deal helps GM within Europe.”

Both auto makers have excess capacity of about 25 per cent in the region, Mr. Stover said, adding that the alliance plan risks “introducing complexity at a time when GM is at a very delicate point in its restructuring.”

Like Peugeot, Opel is struggling to reverse mounting European losses compounded by the region’s auto sales slump and cut-throat price competition. GM’s European operations lost $747-million last year, while Peugeot’s core auto division was €497-million in the red in the second half.

The Peugeot family’s holding company said it will invest €150-million in the capital increase, remaining the French auto maker’s largest shareholder.

The companies said the alliance “enhances but does not replace either company’s ongoing independent efforts to return their European operations to sustainable profitability.”

The strategic pact does not cover the two companies’ production activities, French Industry Minister Eric Besson said Wednesday. Peugeot CEO Philippe Varin pledged that the alliance would be favourable for jobs, Mr. Besson said.

Peugeot last week confirmed that alliance talks were under way, without identifying the potential partner.

The success of GM-Peugeot will depend on the alliance’s ability to overcome political obstacles to cutting European plants, said Mirko Mikelic, who manages investments including GM shares, for Fifth Third Asset Management.

“Peugeot’s struggling; Opel’s struggling,” Mr. Mikelic said. “You can’t just put two struggling entities together and expect magic.”

The Peugeot family, which owns just over 30 per cent of the car maker, has signalled that it would not be opposed to some dilution providing it remained the principal shareholder.

Despite the tie-up discussions, Peugeot remains a favourite for short sellers, with 8.6 per cent of outstanding shares on loan, according to London-based Data Explorers, making it the third most shorted stock on France’s benchmark index.


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