General Motors and PSA/Peugeot-Citroen are mulling combining their toxic assets -- Opel/Vauxhall and PSA's core auto manufacturing arm -- into a joint venture, according to media reports. If the plan goes ahead, it could have big implications for Europe's ailing auto industry.
Morgan Stanley analyst Adam Jonas says a "bad company" comprising the Opel, Vauxhall, Peugeot and Citroen brands could be a catalyst for structural reform in the industry. "Combining the common interests of large mass market European auto firms with limited financial resources spanning multiple countries could provide the trigger for the type of capacity exit that saved the U.S. auto industry in 2009," Jonas wrote in a note to investors. "Properly structured, ring-fencing the Opel liability could be an attractive result for GM stakeholders," he said.
Jonas also said there may be room for more members to join.
A combined Opel/PSA would create a European heavyweight second only to Volkswagen Group, Europe's biggest automaker. Opel-PSA would have an 18.6 percent market regional share, compared with VW Group's 25 percent. The joint venture would be well ahead of fourth-placed Renault Group's 8.5 percent share and fifth-placed Ford's 7.5 percent.
The plan would come under scrutiny of antitrust authorities both at a European level and a national level on fears it could reduce competition. Plans by GM and PSA to create a purchasing joint venture -- a crucial part of their alliance -- were expected to be cleared by antitrust authorities by the end of September. PSA Chief Operating Officer Frederic Saint Geours told me at the Paris auto show last month that the two automakers now expect the purchasing venture to be cleared soon and begin operations by year end.
One option for GM and PSA that would face easier antitrust scrutiny would be to consolidate their production plants into a joint venture. Production and purchasing would be kept separate from marketing and pricing organizations, so there would be no risk of price cartels.
Such a scheme is not completely new to GM. When the company entered in a short-lived cross shareholding alliance with Fiat in 2000, it created two joint ventures, one for purchasing and another for powertrains. At that time, GM and Fiat said they were "allied on costs, rivals in the market place."