GM and PSA praised monstrous synergies and annual cost savings of $2 billion a year as an effect of the alliance that was announced yesterday. The savings won’t come immediately, rather in about 5 years from now. Moody’s thinks it’s a bad deal, and did cut PSA’s debt rating to junk status.
Moody’s Investors Service lowered Peugeot’s rating to Ba1, the highest so-called “speculative” grade with a negative outlook. Moody’s reasoning, according to Reuters:
The cost of implementing the alliance will hurt Peugeot’s earnings in the short term, the agency warned, and cooperation may not produce the savings expected later. “Moody’s notes that past mergers and alliances in the automotive industry have often not resulted in the anticipated competitive advantage and improved performance,” it said.