GM and PSA Peugeot Citroën to Develop New Gas Engines

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GM now owns 7% of Peugeot, but neither company has downsized yet in Europe to meet declining demand.

PSA Peugeot Citroën and General Motors are expanding the scope of their alliance announced earlier this year to include a new line of small gasoline engines developed from PSA’s small gasoline engine program known as the EB engine.

The two companies, both losing billions in Europe also signed final agreement on previously announced shared common platforms and global purchasing.

The economic decline of the European Union continued in October as sales of new passenger cars contracted by 5% to 959,412 compared to October of 2011. It was the thirteenth straight month of sales declines across the economically embattled Eurozone where vehicle sales have declined for five straight years.

The total “synergies” expected from the alliance are estimated at approximately $2 billion annually within about five years. a claim that has met with a fair degree of skepticism. The synergies will not come until new vehicle programs are implemented in so-called low CO2 platforms, as well as additional products in the B small car and D mid-size segments, with limited results predicted during the first two years. It is expected the synergies will be shared about evenly between the two companies.

Planned vehicles that will start launching 1n 2016 include:

  • A compact-class Multi-Purpose Van for Opel/Vauxhall and a compact-class Crossover Utility Vehicle for the Peugeot brand.
  • A joint Multi-Purpose Vehicle program for the small car segment for Opel/Vauxhall and the Citroen brand.
  • An upgraded low CO2 small car segment platform for Opel/Vauxhall’s and PSA’s next generation of cars in Europe and other regions.
  • A joint program for mid-size cars for Opel/Vauxhall and the Peugeot and Citroen brands.

More joint venture vehicles are under consideration, including new products for Latin America and other growth regions.

GM now owns 7% of the French auto group, the second largest automaker in Europe. Unlike GM where the balance sheet has been strengthened since a taxpayer bailout, PSA Group is facing a liquidity crisis. To stay afloat the French company is turning to its finance subsidiary, Banque PSA Finance, for €11.5 billion (~$15 billion) in cash, of which €1 billion is additional liquidity. The main credit agreements have been renegotiated, with drawdowns possible during 2013-2015.

The French State it was announced in late October will provide up to €7 billion in refinancing guarantees for new bond issues during the same 2013-2015 period. It is the latest example of a taxpayer bailout of an ailing auto company facing insolvency and limited credit in the private capital markets, if non-government credit now exists at all. The massive subsidy is subject to EU approval by the Competition Commission in Brussels, and is vehemently opposed by the German state of Lower Saxony, the second biggest shareholder of VW, the largest automaker in Europe.

PSA previously said it will close the Citroën C3Aulnay plant in 2014, and trim production at Rennes, which makes the Peugeot 508, Citroën C5 and C6. More than 4,400 jobs are affected. Work in other plants could absorb 1,500 of the displaced workers in the local Paris area. The company will also pursue voluntary separations of its corporate workforce – as many as 8,000 jobs are at stake, on top of 6,000 eliminated last year.

Now, the question arises if the French state is asking for job guarantees as a condition to provide the taxpayer subsidies. With its Peugeot and Citroën brands, the PSA Group sold 3.5 million vehicles worldwide in 2011, but only 42% of those were outside Europe. As Europe’s second largest carmaker, it recorded sales and revenue of more than €59.9 billion in 2011.

GM is planning to close its Opel Zafira plant in Bochum, Germany after the run-out of the current Zafira van in 2015, but that alone is not enough to return Opel to profitability after decades of losses totaling hundreds of billions dollars.

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About Ken Zino

Ken Zino is an auto industry veteran with global experience in print, broadcast and electronic media. He has auto testing, marketing, public relations and communications expertise garnered while working in Asia, Europe and the U.S.
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