GM to take 7% of French Peugeot in strategic alliance

02-29-2012, 10h28

Struggling French automaker PSA Peugeot Citroen and US giant General Motors unveiled Wednesday a strategic alliance that will see GM take a seven percent stake in its new partner.

The two companies announced "the creation of a long-term and broad-scale global strategic alliance that will leverage the combined strengths and capabilities of the two companies."

The agreement, they said in a joint statement, will "contribute to the profitability of both partners and strongly improves their competitiveness in Europe."

GM and Peugeot are to focus on sharing vehicle platforms, components and modules and on creating a global purchasing joint venture for sourcing commodities and other goods and services from suppliers.

As part of the deal, the French firm is to raise about one billion euros ($1.3 billion) through a share sale which will also include an investment from the Peugeot Family Group, the statement said.

"As part of the agreement, which includes no specific provision regarding the governance of PSA Peugeot Citroen, GM plans to acquire a seven percent equity stake in PSA Peugeot Citroen, making it the second largest shareholder," it added.

The Peugeot family said in a statement that it was "firmly convinced of the strategic rationale" of the deal and would buy 150 million euros worth of the new shares.

"This partnership brings tremendous opportunity for our two companies," GM chairman and CEO Dan Akerson was quoted as saying.

"The alliance synergies in addition to our independent plans, position GM for long-term sustainable profitability in Europe."

Philippe Varin, chairman of the PSA managing board, said: "This alliance is a tremendously exciting moment for both groups and this partnership is rich in its development potential."

Cost savings expected from the deal were estimated at about $2 billion annually within about five years, shared evenly between the two companies.

Last year, the French firm, which employs 205,000 people worldwide, sold 3.5 million cars, two-thirds of them in Europe where the market is increasingly under pressure as the economy slows again.

French Industry Minister Eric Besson welcomed the deal as "good news" for French jobs.

"I have been assured by Philippe Varin... that this partnership will be favourable to PSA's employment and presence in France," he said in a statement.

French President Nicolas Sarkozy is facing a tough re-election battle in a two-round April-May vote and it had been feared that any announcement of lay-offs could be disastrous for his campaign.

The venture also highlights anguished debate in France about a perceived decline of capabilities throughout manufacturing and an industrial performance which lags behind that of Germany.

The alliance also marks an ideological U-turn for the French company, which has traditionally preferred technology cooperation to actual partnerships, with the controlling family keen to conserve the brand's identity.

"They were afraid that adding new blood would dilute the identity," said Bernard Jullien, head of the Gerpisa auto industry research network.

The group already has cooperation agreements with the German firm BMW to build petrol engines, with Fiat and Turkey's Tofas to build light trucks, and with US giant Ford for diesel engines.

PSA also works with the Japanese automaker Mitsubishi to build SUVs and electric cars, with Toyota for small cars and with its historic French rival Renault to build motors and mechanical parts.

Analysts note however that a majority of auto alliances have failed in the past, often because of problems that crop up as the company cultures merge.

"Most big alliances, big acquisitions, have failed. Overall, it's not a sector that has the the highest success rate in terms of acquisitions," said Fitch ratings agency analyst Emmanuel Bulle.

The Renault-Nissan alliance is a rare success story in the sector, while Volkswagen continues to be highly successful after making a series of acquisitions over the last 20 years, including in eastern Europe.

The main objective in such ventures is to reduce costs, especially in the extremely competitive European market.