In many relationships, there comes a time where the two sides don’t know what they want from each other and things start getting awkward.
General Motors and PSA Peugeot Citroen seem to have reached that point faster than anyone would have expected. After all, their alliance was formed only eight months ago amid assurances that it would greatly benefit both groups and help them ride the European market crisis successfully due to the huge economies of scale that would be achieved.
A month after, word came out that they are considering a merger of their European operations sources familiar with the issue told Reuters that talks have been halted.
Soon after forming the alliance, three options were put on the table: GM selling Opel to Peugeot, buying its automotive division altogether or creating a brand new entity.
The first and third scenarios must have appealed greatly to GM that is posting profits in all markets except Europe, where its Opel/Vauxhall brands will lose around US$1.5-1.8 billion this year.
According to the report, though, Peugeot’s €18.5 billion (US$ billion) refinancing deal, which includes a €7 billion (US$ billion) state guarantee, is “sabotaging the plan”.
That’s because, in case they went ahead, then deeper cost cutting and even closing more plants would be inevitable. Peugeot has already announced that it is shutting down one of its plants and Opel is negotiating with German unions about doing the same with its Bochum factory.
“The government bailout conditions rule out French job cuts, which means a deal can’t happen any faster”, one of the sources told Reuters. “It would be politically impossible to have all the cuts falling on the German side.”
He added that, as a result, “any deeper tie-up is unlikely to happen before 2014, when the (European) market picks up”.
Although the French government does not own a stake in Peugeot, on announcing the refinancing, its ministers said that they expected to be consulted on its plans.
“Peugeot needs to build alliances, but we need to measure their consequences for our country and obtain Peugeot’s commitment to preserve all its French sites”, industry minister Arnaud Montebourg told French newspaper Liberation on October 23.
His office did not return Reuters’ calls seeking comments. Likewise, a GM spokesman said that the company would not comment on the issue, while his Peugeot counterpart said that “there are no such discussions underway”.
“Peugeot’s incentives to cooperate may have changed because the French government is at the table”, said a person familiar with the issue. “They’re not going to want to have Opel building Peugeot products.”
It could very well be that GM, too, is having second thoughts; after all its shares rose by 25 percent this year while those of Peugeot have plunged by 57 percent.
“GM is looking at this and saying, ‘What the heck are we doing here?’”, he added.
Since announcing the alliance, BMW and Ford have said that they are terminating their deals with Peugeot concerning hybrid R&D and making larger diesel engines respectively.
Moreover, the plan to build a small car for Brazil, which was announced in February, was dropped last month. This, says Credit Suisse analyst Erich Hauser, is bad news for Peugeot because it hurts it “in the area where they needed help the most”.
So where does this all leave the GM-Peugeot alliance? “It’s become obvious that the plan announced in February is just inadequate”, said Hauser. “For it to make sense there would have to be a plan B.”
By Andrew Tsaousis
PHOTO GALLERY
