GM, Peugeot to scale back alliance

Peugeot: 'Business model just wasn't there'

UPDATED: 10/13/13 8:48 am -- new story

PARIS -- General Motors and PSA/Peugeot Citroen are scaling back their alliance as the French carmaker pursues an investment by China's Dongfeng and the U.S. automaker seeks greater control of its destiny in Europe.

PSA said a planned joint platform for subcompact cars at the heart of the alliance was likely to be cancelled. "Further analysis showed that the business model just wasn't there," a PSA spokesman said, without elaborating.

Previously announced mid-term synergies of $1 billion for PSA from the alliance may be readjusted downward, the company said in a statement on its quarterly results.

The dropped plan to replace the Peugeot 208, Citroen C3 and Opel Corsa with a common small car was "absolutely key" to the partnership, Barclays analyst Kristina Church said. "It certainly seems GM has no focus on the alliance with Peugeot any more. They don't want to be partnered with a struggling company, and they have alternative methods to turn things around," Church said of GM's alliance with PSA.

GM alliance 'on schedule'

PSA spokesman Jean-Baptiste Thomas said today that the alliance with GM is going on as scheduled, "We have other projects under review. Some projects are not economically feasible, which is why they are dropped, but we're taking the projects one-by-one and examining their economic feasibility first."

PSA announced earlier this month plans to shift production of a compact minivan to a GM factory in Spain. GM's Opel unit will build a new generation of a jointly developed small minivan likely to be the successors to the Opel Meriva and Citroen C4 Picasso at its Zaragoza factory starting in late 2016.

"We are moving forward with the implementation" of the projects which have already been agreed upon, Ulrich Weber, a GM spokesman, said today.

PSA CEO Philippe Varin's deal with GM has been a cornerstone of his strategy to turnaround the carmaker by tapping GM's scale to cut costs. GM took a 7 percent stake in PSA after the companies announced a broad-based alliance in February, 2012. Soon after that, the automakers announced plans for at least five joint vehicle and powertrain programs.

But the alliance hit obstacles within eight months, when GM revealed that its Chinese partner SAIC would veto key plans including joint GM-PSA development on larger cars. GM also turned down a merger of its money-losing Opel division and PSA's automotive operations, sources said.

Joint programs remaining

Today's announcement leaves the alliance with joint purchasing and two joint vehicle programs. Projects are underway for the joint development of compact minivans and crossovers, PSA said today. These projects have survived from about 40 projects initially floated, said PSA programs chief Jean-Christophe Quemard.

The company said the joint purchasing organization's first results had achieved savings of around 60 million euros this year.

The slow financial impact of its alliance with GM puts additional pressure on PSA to find new partners amid its cash crunch. The company plans a capital increase of at least 3 billion euros, with Dongfeng and the French state possibly each taking stakes of about 20 percent, according to sources.

GM may pull out of the alliance should Dongfeng purchase a holding in PSA because GM works with rival SAIC Motor in China, Bloomberg reported. GM has the option to terminate the partnership if there is a change in control of the French automaker.

As soon as it became clear that PSA is talking to Dongfeng, the alliance with GM was under watch, said Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler. "It doesn't mean the beginning of the end, but it's sensitive as GM has high ambitions in China and has different partners."

GM's new course

The loosening of ties signals GM's renewed commitment to manage its own European turnaround independently, following in domestic rival Ford's footsteps.

Around the time it partnered with PSA, GM was still wavering over the future of its European Opel division. But after several high-level executive departures and a deal with unions to close its inefficient Bochum plant in Germany, GM appears to have settled on a new course.

In March, it hired former VW executive Karl-Thomas Neumann as its new Europe chief, and within four months announced a partial transfer of Opel Mokka compact SUV production from Korea to Spain

Neumann scored another victory last week by bringing GM's profitable Russian operations under his remit.

GM is also stepping up efforts to win economies of scale by using its own vehicle platforms globally.

Over the past 12 years, GM has lost around $18 billion in Europe, where the company expects to break even only in mid-decade after its regional operating loss widened to $1.8 billion last year from $700 million in 2011.

PSA Q3 revenue drop

PSA said its third-quarterly revenue fell to 12.11 billion euros ($16.68 billion) from 12.58 billion in the year-earlier period.The automaker has continued to lose European market share this year to Volkswagen and other major competitors.

A 5.8 percent revenue decline to 8 billion euros at the core auto division reflected "growing pressure on market shares from premium and low-cost brands," PSA said, as well as a negative currency effect, mainly attributable to the Russian ruble, Brazilian real, Argentine peso and British pound.

The company reiterated a target to cut cash consumption by at least 50 percent this year after burning through 3 billion euros ($4.1 billion) in 2012.

Reuters and Bloomberg contributed to this report.