PSA Peugeot Citroën in Alliance Talks with GM

PSA has partnerships with Ford, Toyota, BMW, and Mitsubishi on components and engines.

The French Labor Minister Xavier Bertrand told Europe 1 radio last night that PSA Peugeot Citroën was discussing an alliance with General Motors and Opel in Europe.

The admission came a day after PSA – Europe’s Number Two automaker after VW – issued a terse statement that said, “In the context of its globalization strategy and improving its operational performance, PSA Peugeot Citroën looks at potential cooperations and alliances. Discussions are taking place and there can be no certainty at this stage that these discussions will result in any agreement.”

Neither General Motors nor PSA have officially confirmed the talks, other than to say that discussions with other automakers routinely occur. Last week Peugeot posted weak results as Group operating income declined to €1,315 million from €1,796 million in 2010. GM has been losing money at Opel for more than a decade – $700 million in 2011 alone.

“Deterioration in our business environment from the end of the first half lead to very disappointing results from our Automotive Division,” said Philippe Varin, Chairman of the PSA Peugeot Citroën Managing Board.

The results came after a 1.8% increase to €1,157 million in the first half of 2011. However, Group operating income came to only €158 million in the second half, because of the Automotive Division’s €497 million loss during the period.

According to the Frost & Sullivan consultancy, PSA already has several strategic alliances. PSA has partnerships with Ford, Toyota, BMW, and Mitsubishi on components and engines. However, in Frost’s opinion Peugeot does not have a strong global strategic alliance that can bring effective cost reduction and manufacturing synergies.

“With other major players like Renault-Nissan, and Fiat-Chrysler forming strategic alliances, this may be the key advantage of Peugeot and GM working together, if they are able to share investments and technology development. This could lead to significant economies of scale for each partner, however, any detrimental social and political effects need to be considered carefully,” Frost & Sullivan said yesterday.

PSA estimates in 2012, the so-called Europe 30 markets should contract by 5%, and by ~10% in France. EU car sales dropped yet again in January by 7.1% compared to a year ago, a troubling trend since car sales have declined for four straight years in the moribund European Union. The latest sales data from ACEA, the trade group of EU automakers, confirm what individual car company financial results have been indicating – the European economy continues to contract, and at rates greater than automakers anticipated as recently as last quarter or the quarter before that.

In total, 968,769 new registrations were recorded in the 26-nation EU region during January, which had on average one more working day than January 2011. Particularly hard hit were France (-20.7% for the second largest market) and Italy (-16.9% for the third largest market), with large negative consequences at PSA Group (-14.9%), Renault Group (-25.2%) and Fiat Group (-16.2 %.). PSA sells roughly 60% of its vehicles in Europe.

GM Europe lost $700 million during 2011 because of ongoing problems at Opel, which has been losing money for more than a decade. The Opel Board, as well as GM’s Board of Directors, has the task of returning GM’s European Operations to sustainable profitability, after years of stopgap measures by previous GM management teams that did not accomplish this. Further cost cutting is needed, which likely means politically contentious plant closures.

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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