GM-Peugeot tie up sidesteps overcapacity problem
The alliance between car giants General Motors and PSA Peugeot Citroen, announced as a bold move to save jobs and cut costs, leaves aside the thorny issue of overcapacity in Europe, a big concern for both companies.
"The pressing issue of overcapacity in Europe remains unaddressed by this deal," ratings agency Fitch said in a note after GM and Peugeot unveiled a global cooperation deal aimed at boosting competitiveness but .
Under the agreement, a joint global committee will steer an alliance expected to generate some $2 billion (1.5 billion euros) in savings annually within about five years.
To do that GM, which controls money-losing European producers Opel and Vauxhall, and Peugeot will share certain vehicle platforms, components and modules.
But each will continue to "market and sell its vehicles independently and on a competitive basis," they said in a joint statement.
Both companies in recent years have struggled to sell as many cars as they produce, but Peugeot chief executive Philippe Varin said each company would have to deal with production overcapacity separately.
Varin has insisted for months that even though European car factories operate below optimum levels, they still make 20 percent more units than the market can absorb.
Peugeot is especially worried as the problem affects mainly mini and small sized vehicles, the car group's bread and butter.
Varin's complaints on endemic overcapacity have fueled fears that Peugeot will close factories as soon as timing allows.
Last year an internal memo from Peugeot, revealed by labour union CGT, outlined a plan to shut a plant in Aulnay, north of Paris.
Peugeot said the plan was over-ruled, but a deep restructuring is expected after a French presidential election in the spring.
This situation for GM is no better.
Opel, GM's European brand since 1929, had long met with success but has since become an Achille's heel.
In 2011, GM lost $600 million in Europe, results that bosses in Detroit have called unacceptable.
Polk auto industry analyst Bertrand Rakoto said Peugeot and Opel are well aware of the challenges yet the venture changes little, except perhaps on savings made in sharing platforms across a wider array of models.
Peugeot plants under threat are Aulnay and another in Madrid.
An Opel factory in Bochum, Germany, repeatedly threatened with closure, will not be affected by the tie-up, a company spokesman said though union leaders said it was too early to say what the consequences of the tie-up would be.
Until 2014, Opel is bound by a pact barring any closures.
A British plant in Ellesmere Port, which produces both Opels and Vauxhalls, is also under threat of closure.
PSA Peugeot Citroen meanwhile will hold a special European works council meeting on March 16 to discuss the effects of this week's tie-up.
Union leaders are worried about the planned combination of certain services, like purchasing, across the two car groups.
"I don't know how this can be done without cutting into the workforce," said CFTC union delegate Franck Don.
Analyst Rakoto said the biggest effect will be on outside providers, but French Industry Minister Eric Besson said the underlying relationship between auto groups and suppliers would not be put into question.