GM, Peugeot mull European joint venture
General Motors and PSA/Peugeot-Citroen are exploring ways to combine their European operations in a second phase of the alliance they forged earlier this year, sources say.
One option is for GM's Opel/Vauxhall unit to merge with PSA's automotive operations in a joint venture, Reuters and the French newspaper La Tribune reported, citing sources who asked not be identified because the discussions are confidential.
GM and PSA are looking at ways to stem their losses in Europe's slumping auto market.
Discussions began soon after the initial alliance deal and have covered "selling Opel to Peugeot, buying Peugeot's automotive business or putting them all together in a new entity," one of the sources said.
GM would have a 30 percent stake in the joint venture and would inject up to $10 billion into the new company, a source familiar with GM's thinking told Automotive News Europe.
By taking a 30 percent stake, GM would not have to consolidate Opel's financial results, thus removing the U.S. automaker's biggest financial liability, the source said.
GM would inject cash in the venture because of the imbalance in annual revenues between PSA -- 25 billion euros in European sales -- and Opel, with revenues of 17 billion euros.
La Tribune said the discussions had also divided the Peugeot family, which controls the French automaker through a stake of about 25 percent, commanding approximately 38 percent of its voting rights.
Volume car makers, which have lost market share to low-cost and premium car brands in recent years, are bearing the brunt of a Europe's downturn car that shows no signs of ending.
As tight budgets keep buyers away from showrooms and industrial overcapacity saps earnings, mass-market players need to find new ways to cut costs to survive.
The discussions between GM and PSA on a deeper tie-up to save costs are still at an early stage, sources said.
"To the extent that GM is able to cut its losses in Europe or get another manufacturer to share some of their burden, that would seem to make sense," New York-based analyst Brian Sponheimer said.
"Structure is obviously the key," said Sponheimer, whose employer, Gabelli & Co, is a subsidiary of GM shareholder Gamco Investors.
Analysts don't expect that GM, which has lost money in Europe for 12 straight years, would announce anything until after it reached a new labor deal with its German hourly workers. But analysts have said automakers can't seriously tackle their costs in Europe unless they close plants.
German union IG Metall said on Friday it wants an agreement with Opel, which is looking to restructure its German business, by October 26, which is five days before the U.S. automaker is scheduled to report third-quarter results.
However, Guggenheim Securities analyst Matthew Stover called a joint venture a "gimmick," and said it will take a long time for GM to fix its money-losing European unit.
"I don't think it would solve the problem, putting two troubled companies together and expecting it to become a better company," said Stover, who has a "neutral" rating on GM shares.
GM and PSA both declined to comment on the report. "We haven't commented on previous reports and we're not going to on this one," PSA spokesman Jonathan Goodman told Reuters.
GM spokesman Selim Bingol said in an e-mailed statement: "We don't comment on speculation. We are focused on earning the benefits from our alliance with PSA that we have identified."
Morgan Stanley analyst Adam Jonas said last month that GM needed to sell Opel because of dwindling sales and deteriorating pricing. GM has lost about $16 billion in Europe over the past dozen years. Jonas forecasts another $1 billion in annual operating losses for Opel, on average, through 2021.
PSA has said it is burning through 200 million euros in cash a month and does not expect to be in the black until 2014.
GM and PSA unveiled their initial agreement in late February with the goal of saving at least $2 billion annually within five years, evenly split between the partners.
GM paid 320 million euros for a 7 percent stake in PSA as part of the original alliance deal, though the value of that stake has plunged with the French automaker's shares. GM said in August it may have to write down the value of its investment.
PSA and GM outlined five possible joint vehicle programs following talks with French unions in March: a family of small cars for emerging markets; larger sedans; a fuel-efficient subcompact design; compact crossovers or SUVs; and a dual-clutch transmission.
Reuters contributed to this reportContact Automotive News