By on February 28, 2012

Hear that chafing sound? It is analysts scratching their heads. They wonder why in the world would GM buy 7 percent of France’s PSA Peugeot Citroen. Bloomberg says this is about to happen. Neither GM nor PSA wants to confirm the deal. However, Bloomberg already has intricate details of the planned transaction, someone seems to be talking on deep dark background. Sounds like the odd couple is about to do it.

The question remains: Why? Analysts are hard pressed to come up with a logical reason for a tie-up. The biggest problem of both: Too many workers, too many factories, not enough sales. LMC Automotive in Oxford, UK, puts the capacity utilization of PSA’s European plants at 62 percent, and that of Opel at 74 percent. Traditional industry benchmarks require capacity utilization of better than 80 percent as a prerequisite of profitable production. An alliance between two ailing businesses does not produce a healthy one. Car consultant Maryann Keller told Bloomberg: “What in the world do you get by buying a tiny stake of a French company where you could never lay anybody off or close a factory?”

GM lost $747 million in Europe in 2011, where losing money has a great tradition for the General. It is GM’s 12th annual loss in a row. So far, GM has lost $12.4 billion in Europe, and there is no end in sight.

PSA’s track record is less bleak. Europe’s second largest car company made money in 2010, lost money in 2009, made money in 2008. Recently, PSA has been engaged in a frenzied sell-off of assets. It looks like they are raising money in a hurry.

Both are looking at a Europe that is about to contract. PSA is heavily exposed to the troubled Mediterranean parts of Europe. Both have been hemorrhaging market share in Europe.

All kinds of reasons are being presented for the alliance that just won’t make sense: Diesel engines, light commercials, joint sourcing of parts. None of these create the desired slap the forehead effect. I guess we’ll get a convincing reason if the deal indeed goes ahead.

Any better ideas, Best & Brightest?

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48 Comments on “Odd Couplings: GM To Buy 7 Percent Of PSA? What For?...”


  • avatar

    One of my savviest readers thinks that this is all about putting pressure on the German government somehow. Maybe it’s a way to put teeth behind a threat to liquidate Opel?

    I don’t know what I think of that but I don’t have any better theories yet.

  • avatar
    Tstag

    Here’s a thought. Maybe GM is planning to sell Opel to PSA. By selling Opel to PSA in return for some shares they get to “keep” Opels sales and lose their liabilities.

    PSA then get the challenge of restructuring Opel. My guess is they will shift some production around, relaunch the Talbot (utilising some capactity) and then shut down the rest. PSA need more volume this is one way of achieving that.

  • avatar
    Detroit-X

    They’re buying it because:
    1. There’s a Powerpoint somewhere in GM, where it all makes sense. Really. Trust them.
    2. SAAB is dead. What other miniscule automaker is there now that can GM buy and destroy billions of earnings and effort?

  • avatar
    jhott997

    “The question remains: Why?”
    Stupid is as stupid does.

  • avatar
    ReGZ_93

    GM Has some extra taxpayer money lying around and needed to spend it on something? I don’t know. It really doesn’t make any sense.

  • avatar
    newfdawg

    This makes absolutely no sense to me–unless GM had such an enjoyable time with their SAAB adventure they want to repeat the experience.
    Of course you can justify anything with a powerpoint presentation.

  • avatar
    tced2

    About 2000, GM entered into a deal with Fiat for about $2B and had to pay another $2B a few years later to get out of it. GM apparently got nothing out of the “deal”. There’s a whole new crew running GM now, but apparently they still want to spend a lot of money in Europe. I guess the Opel division doesn’t sink enough money.

  • avatar
    mikey

    Just a thought here.

    Just imagine if GM found a cure for cancer,world hunger,and permenent peace in the Middle East.

    Would TTAC and the majority of the” B&B” find a way to put a negative spin on it?

    • 0 avatar

      Mikey, I don’t want to argue with you as I find your posts always honest and insightful. You give us, well at least me, a window onto the ‘other side’. I value what you have to say ’cause as an ex auto worker your opinion carries weight with me. You lived it and you know the ropes better than most of the so-called B and B.

      Anyways, didn’t you catch my mostly postive review of the new GM launch in Brazil, the Cobalt? Or Steve Lang’s very positive post on the Sonic? I like to think we give credit when credit is due, but little deal really doesn’t make sense. Back when there was the Fiat imbroglio it kinda made sense as Opel could benefit Fiat in bigger cars (Opel was healthy back then), Chevy could benefit Fiat with trucks and Fiat would pay back the favor with diesel engines, small displacement gas engines, small cars in general. Now, as PSA is not well and neither is Opel, my thinking is that Bertel is basically correct asking why. I do, too, why? Either they know something we don’t or it’s a lame idea.

      Just saying my friend. Hope to see you commenting more here ‘

    • 0 avatar

      Mikey, I don’t want to argue with you as I find your posts always honest and insightful. You give us, well at least me, a window onto the ‘other side’. I value what you have to say ’cause as an ex auto worker your opinion carries weight with me. You lived it and you know the ropes better than most of the so-called B and B.

      Anyways, didn’t you catch my mostly postive review of the new GM launch in Brazil, the Cobalt? Or Steve Lang’s very positive post on the Sonic? I like to think we give credit when credit is due, but little deal really doesn’t make sense. Back when there was the Fiat imbroglio it kinda made sense as Opel could benefit Fiat in bigger cars (Opel was healthy back then), Chevy could benefit Fiat with trucks and Fiat would pay back the favor with diesel engines, small displacement gas engines, small cars in general. Now, as PSA is not well and neither is Opel, my thinking is that Bertel is basically correct asking why. I do, too, why? Either they know something we don’t or it’s a lame idea.

      Just saying my friend. Hope to see you commenting more here ’cause I and a lot of people who come to this site have a lot to learn and gain from your opinions.

    • 0 avatar
      Detroit-X

      As it is posted later here: GM has such a great and wonderful history of “alliances”.

  • avatar
    mtr2car1

    The only thing I can figure is that a tie-up with PSA gives GM the ability to transfer to them the work Opel does from a product development stand point, thus allowing GM to put Opel into bankruptcy and void those killer contracts with the unions.

  • avatar
    Robert Schwartz

    As a dog returneth to its vomit, so does a fool return to his folly.

  • avatar
    Conslaw

    . . . because without buying 7% of PSA it doesn’t make sense to enter into an agreement to pay them $2 billion if GM decides not to buy the rest of the company. It’s simple, really.

  • avatar
    JCraig

    I agree with those saying this may be a way for GM to eventually absolve themselves of Opel. Let Opel go into bankruptcy and tie up with PSA to keep producing and selling cars in Europe. It’s a win-win for them. PSA gets to utilize all that capacity and GM finally gets to write off Opel.

  • avatar
    Chris_147

    If a deal between GM and PSA indeed goes through, Vauxhall will be axed.
    Both Open/Vauxhall and PSA have too much production capacity.
    Merkel will not allow closure of German factories.
    Sarkozy (or his successor) will not allow closure of French factories.
    So the Brits with their difficult behaviour in Europe will need to close the factories in Lutton and Ellesmere Port.
    Opel can sell rebadged PSA business vans (capacity of Lutton) and Opel can build Astras in Russelheim (capacity of Ellesmere Port).
    So on short term, some benefits can be achieved.

    But still: both are Europe focused brands.
    Only real solution is that PSA takes over GM, or GM takes over PSA.
    GM taking over PSA will never happen, because the Peugeot family still controls 48,3% of shares. Peugeot has been independent for over 200 years, they will not give that up.

    So PSA will take over GM. Sound absurd? Well, who thought 10 years ago that a small failing Italian carmaker could take over Chrysler?
    Do not underestimate those French!
    Also remember: Buick is nothing without Opel! GM cannot sell Opel since it designs many GM models. And no: Daewoo/Chevrolet cannot replace Opel.

  • avatar

    shenanigans. how much is being paid to the investment banks for advice? they shuffle paper and take the cash. same old GM.

  • avatar
    fredtal

    Some executives will receive a bonus when they buy them. Then in a few years another group of investors will receive a bonus when they sell them.

  • avatar
    alluster

    Two rocks tied together will not float. PSA brings nothing new to the table and there isn’t really anything gained by GM. Both companies have over capacity issues and high political intervention against closing assembly plants in Germany and France respectively. All benefits if any, will take a decade or more to bear to fruit and GM doesn’t have a decade to turn Opel around.

  • avatar
    analoca

    A 7% stake does not allow too much in terms of interaction for restructuring, closing plants and of course play with combined market share in Europe. From my view it is simply part of what has already been said by some sources who know the deal: Achieve synergies in product development, namely exploiting PSA expertise in small -highly efficient diesel engines, as that is vital in Europe. Conversely PSA could benefit of strong Opel know how in chassis and vehicle dynamics..

  • avatar

    what else would you expect after sending the bankster Girsky to Europe? if you pick up a snake and it bites you, it’s not the snakes fault. that’s what snakes do.

  • avatar
    SherbornSean

    Similar objections were raised when Renault and Nissan hooked up. But it has been a highly successful alliance because it enabled them to take a lot of cost out through unifying platform engineering across volume products.

    There’s no reason that PSA and GM can’t achieve similar results, if leadership is united and proactive in driving the organizations there.

    • 0 avatar

      Technically Renault-Nissan worked cause where one was weak the other was strong (geographically speaking). This doesnt seem to be the case with a PSA-Opel tie-up. Of course you could have apoint if one thinks of global GM.

      As to the leadershio issue I agree with you. But neither GM nor PSA seem to have a leader like Mr Ghosn.

      Naw, seems not to be a good fit.

    • 0 avatar
      jhott997

      Yes. sure. Whatever. Are you serious?
      GM has such a great and wonderful history of “alliances”.

      PSA gets capital to run the company a few more years, or to buy out workers and close plants. This is what GM should be doing with Opel, not gifting capital to PSA.

  • avatar
    Pch101

    “All kinds of reasons are being presented for the alliance that just won’t make sense: Diesel engines, light commercials, joint sourcing of parts.”

    I don’t know why that’s so hard to believe. You could summarize this in one word: “synergies.”

    But that doesn’t mean that the effort will work. Often, the quest for synergies turns out to inflict more harm than good. On paper (or Powerpoint), more efficiency is created by sharing certain functions, but there are usually conflicts that somehow compromise the effort.

    The old GM’s track record with such attempts varied from disastrous to meh. It’s fair to speculate whether the new GM will be any better at it.

    • 0 avatar
      jhott997

      “It’s fair to speculate whether the new GM will be any better at it.”
      yes it is. It won’t be.

    • 0 avatar
      alluster

      GM would be better off buying Mazda instead. With GM’s $40B cash and Mazda’s market cap of $3B, GM can buy a 50+% stake for around $1.5B. This will get them a strong foothold in Japan (3rd largest market) where GM has had no presence, gets them light weight and ski-activ technology which GM desperately needs at a time when fuel economy is becoming the top priority worldwide, lets Mazda move some production to Europe and better utilize Opel’s spare capacity, Mazda will have access to GM’s North American plants to escape the rising yen and GM will be able to add 1.3 Million annual sales to their numbers. They can fire most of the management to avoid redundancy and get Mazda profitable. That would be a win win though I am pretty sure the Japanese will not be very excited about Westerners calling the shots.

      • 0 avatar
        JCraig

        That would be the death of Mazda. The next gen Mazda3 would be a rebadged Cruze produced in Korea. Skyactive would be deemed too expensive and in 5 years Mazda would be the new Pontiac.

      • 0 avatar
        minneapolis_lakers

        The flaw with your reasoning is that you assume the Japanese need money — far from it, Japan Inc. is sitting on than 2.4 trillion dollars of cash, and Mazda is part of the wealthy Sumitomo keiretsu.

        If Mazda need money, they’ll dial sugar daddy Sumitomo bank.

    • 0 avatar
      Fusion

      I am just wondering what the reason for the partial ownership is. The things one can achieve with 7% ownership can also be done with loose alliances, the way PSA has done it so far. They are working with BMW (diesel engines), Mitsubishi (electric cars, SUV), Toyota (C1/107/Aygo) and Fiat (commercial vehicles) so far – so why does the GM cooperation need a financial tie-up?

      Anyway, one of the major reason I’d suspect behind this are commercial vehicles. Fiat/PSA’s cooperation on this ends after this model generation (2017), so developing for the next generation needs to start relatively soon. GM-Europe (Opel) is all over the place on LCV’s as well – the larger ones are built by Renault, the small ones by Fiat, and for some times, Opel was without a competitor in the small LCV market…

  • avatar
    vanpressburg

    Of course , there is a reason.
    Greece is in bankruptcy, Spain and Portugal very close and Italy and France in big trouble.
    When these countries start to fall now, recession in Europe would cause recession in USA and
    Obama will not be reelected!!!
    So Obama is helping to hold Europe until he is reelected. USA is giving billions of dollars to Europe right now in many ways, this is one of them.

  • avatar

    May be GM needs luxury brand in Europe since Cadillac does not sell there well?

    • 0 avatar
      CJinSD

      Peugeot is hardly a luxury brand in Europe though. It is pretty much a direct competitor to Opel.

      • 0 avatar

        SAAB also was not but GM thought it was. GM also wanted to buy Ford and Chrysler and FIAT and list goes on and on. GM has kind of attraction to necrophilia. How many dead brands GM owned? More than anyone else on this side of Milky Way. Ford and Chrysler were lucky to avoid GM’s love otherwise would be dead already.

  • avatar
    Hank

    I thought they killed off “Old GM”, so this must be the Old GM Zombie Apocalypse.

  • avatar
    mertcft

    i tell you why they bought it.. PSA had a joint venture with BMW in Munich called BPCE (BMW Peugeot Citroen Electrification) and they were all working on electric vehicle concepts which will be used by BMW and PSA group vehicle in the near future. With this buy out GM has made this alliance go down and at the moment BMW hybrid vehicle projects are a mess and till the next move bmw has ruled out on the electromobility game in europe. on the other hand volkswagen group is doing its own development on electromobility still full gas. so PSA was a good move for GM to buy the PSA equity just a little less than peugeot family. GM will sel its electromobility know how to PSA and develop them further in europe. in that case PSA will be the only oponent in front of VW in europe without bmw in the game..


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