A year ago, in an alliance of the walking wounded, GM bought 7 percent of  limping PSA. Since then, GM had to write down a good deal of that so-called investment.

PSA faces a European Union investigation triggered by the French government providing financial support for Peugeot’s financing arm.

The probe could derail a loan-guarantee package agreed to by France in October.

PSA Peugeot Citroen told Reuters it is not true that it is low on cash, and that it needs  to ask shareholders for an infusion. France’s La Tribune says that Peugeot is looking at a capital raise after burning through 2.5 billion euros ($3.23 billion) of cash in the past year.

“A capital increase is not on the agenda since the financial security of the group … is at a high level and was reinforced in the first quarter by the success of bond issues,” a PSA spokesman told Reuters, pointing to the 7.3 billion euros in cash reserves and 3.2 billion in undrawn lines of credit the group had as of the end of last year.

PSA, a partner of GM, does not expect a return to profit until 2015. Peugeot entered wage negotiations with the unions.

The MPV segment, so popular in Europe, was basically invented by the French. The Renault Espace, the grandfather of the modern minivan, was originally supposed to be a Peugeot, until PSA deemed it too expensive and sold it to Renault. Nearly two decades later, Renault disrupted the segment again with their compact Scenic minivan, which spawned imitators from nearly every single brand.

Citroen’s newest MPV, the C4 Picasso, is a massively important car for PSA and the French car industry. It’s not as sexy as the Renaultsport or Alpine products coming down the pipeline, nor does it have the enthusiast-weirdo cachet of previous PSA products. But this car will be one of the products that determines PSA’s future. Having missed the boat on making a push in the low-cost segment, the C4 and the Peugeot 208 will define the next generation of PSA products, as the two brands attempt a convoluted re-positioning in the marketplace.

The Picasso is the first car to ride on PSA’s new EMP2 modular architecture. The Picasso will be chock full of PSA’s latest tech, from blind spot cameras to massive touchscreens to adaptive cruise control. New diesel powertrains will offer in excess of 70 mpg on the European cycle and C02 emissions on par with a Toyota Prius; not hugely exciting, but if you ever hail a cab in Paris, you’ll probably be riding in one of these.

PSA desperately needs to C4 to succeed. As the test best for their next generation architecture, the future of PSA hangs in the balance. Strong sales will mean a whole new generation of EMP2 based vehicles. Failure could entail another bailout or worse.

PSA announced their renewed brand strategy for their Peugeot and Citroen lines, and the situation has finally been clarified after frequent back and forth reports that contradicted one another. It turns out that PSA will employ a three-tier approach that is equally confusing, with Citroen as the lowest tier with Peugeot on top. But then there’s also Citroen’s DS line, which is supposed to be upscale itself. Confused? So are we.

A hand cheat sheet provided by PSA to Automotive News Europe outlines the “values” supposedly embodied by both Citroen and Peugeot.

PSA CEO Philippe Varin recently outlined the new product strategies for Peugeot and Citroen like this:
Citroen stands for:
Fuel-efficient and environmentally friendly cars
Easy-to-use, less sophisticated technology
Purist design
Peugeot stands for:
Perceived quality and reliability
Elegant, dynamic designs that stand out from the crowd 
Innovative driving experience and driving pleasure

PSA was adamant that Citroen was not going to become a low-cost brand, but the next generation of vehicles will be positioned slightly lower than the current range. Does that mean the Hydramatic suspension, one of the brand’s hallmarks, will be gone? Let’s hope not. What will be happening is that Citroen vehicles will be positioned as “cheap premium” (whatever that means), with Peugeot being “premium” and to top it all off, Citroen’s DS line will be positioned as an even more premium range relative to Peugeot, if Automotive News has it right, which is difficult to ascertain, since PSA seems to change its positioning depending on what day of the week it is.

Further complicating matters is Peugeot’s schizophrenic offerings, including the low-cost 301 sedan which will be sold in emerging markets as a premium vehicle relative to the other low-cost competitors, if you buy into PSA’s spin. It’s a tough one to swallow, considering that Renault has poured so much time and effort into Dacia for the precise reason that the low-cost and premium brands should not mix.

Keen French car observers will also note that the brand values espoused here are backwards. Traditionally, Citroen had the elegant, dynamic designs and wild new technologies, while Peugeots were rugged and simple enough to endear themselves to the pied-noirs of Africa. Outside of France and Africa, Peugeot’s profile is basically nil – if the Citroen C6′s poor sales were an indication of how poorly premium French cars were received  then the Peugeot 607 large sedan may have been the only offering to fare even worse, ending up largely in the hands of cab drivers.

The most succinct analysis of it all comes from Fitch Ratings, which noted

“We believe this strategy makes sense overall but carries substantial execution risk and could take many years to bear fruit. In particular, we are concerned that the existence of both entry-level/basic models and aspiring higher-end products within the two brands will not be easily understood and accepted by customers.”

Last month, we suggested that PSA’s new compressed air hybrid system was a good way for PSA to drum up some investment into its ailing new car business. Now comes word that PSA wants to talk to other car makers, including alliance partner General Motors, about pooling the R&D cost of the new tech.

Given that PSA spent an estimated $4 billion on R&D in 2011, the $650 million cost to develop the new technology is a relatively modest sum. Yet PSA is still looking for a partner (or partners) to help bear the burden. PSA is looking to get cars using the technology, dubbed HybridAir, on the road by 2016, a very short timeframe for a new technology, especially one as radical as this.

PSA is also looking for a partner for the technology in China. Meanwhile, GM issued a statement claiming that the new hybrid system “is not part of the alliance discussions”. Bosch, which has assisted PSA with the initial development of HybridAir, previously warned of “unspecified technical challenges” with the system, throwing further doubt on the viability of the technology as a real automotive solution. Evidently, it doesn’t seem to be doing much to bring some badly needed money in either.

A bit of light reading for everyone wishing they were in Geneva, munching on some pain au chocolat while paying $8 for a Nespresso. CAR magazine contributor Stephen Bayley has a very entertaining essay entitled “The End of the French Car“, in which he laments the demise of the quirky, compact French automobile.

Bayley’s thesis is that once France lost it’s cultural capital, the cars began their inevitable decline

When did the decline start ?  Back in those first paragraph student days, I could sit on a train for thirty-six hours to Madrid and have for company only my French philosophers and the latest copy of Auto Journal with all its fabulous news of new French cars with oleo-pneumatic suspension and strange seating arrangements.  Who can say whether it was cause or effect, but when French culture as a whole lost its authority, the cars became boring.  Who reads Sartre today ?  Exactly.

Sure, the death of the Citroen C6 was a bit of a turning point; the large French luxury sedan with superb ride quality and great design (and admittedly, not much else) had finally lost any relevance in the wider marketplace. But I’m not so sure that it’s time to bury French cars for good.

The Renault 4 and Citroen 2CV that Bayley venerates are no longer with us, but in their place, we have the Dacia. Not as quirky or memorable, sure, but designed to fulfill the same promise of cheap transportation for those who may not have been able to afford a new car. The Peugeot 205 GTI may be dead, but just around the corner, there is a Peugeot 208 Hybrid with a two-cylinder engine that will hit 60 mph in about 8 seconds (roughly the same as a 205 GTI, maybe a bit quicker, depending on who you ask) and weighs a couple hundred pounds less than the 205.  If anything, the demise of French cars won’t come from a lack of competent product, but market forces that have little to do with the cars themselves.

The French government is planning on raising taxes on diesel fuel, branding it a “health issue”, much to the chagrin of consumers and the country’s auto industry.

France’s environment minister, Delphine Bartho, told French radio (via Bloomberg) that a study by the WHO showed that diesel fumes presented a significant health hazard, and the French government would move to raise taxes on the fuel to help soften demand.

“It’s inescapable,” Batho told RMC radio today when asked whether lower taxes paid on diesel compared with gasoline should be eliminated. “I am favorable. It’s a public health issue.”

Currently, diesel is about 20 cents cheaper per liter than gasoline, but France’s new tax regimen would bring diesel costs in line with gasoline. Originally, diesel was taxed at a favorable rate due to its use in farm equipment and heavy-duty vehicles, but the lower cost led to a massive shift towards diesel powered passenger cars. 73 percent of cars sold in France last year came with a diesel engine, compared to 55 percent on average in Western Europe.

Renault and PSA have been less than enthused with the new tax hikes. PSA is one of the world’s largest producers of diesel engines, and had criticized the studies cited by the French government, with PSA’s Director of R&D, William Faury, stating that they ignored modern particulate-filter diesel engines in favor of old-style engines.

The problem is not the diesel engines on sale now, but the pre-filter era diesels. Current Euro 5 standards for diesel engines are exceedingly tough, and PSA already has diesel powered models capable of emitting a Prius-like 100 grams of CO2 per km. PSA’s aggregate CO2 emissions level for its fleet of cars is already the lowest in Europe, at 122.5 grams per kilometer, just ahead of Toyota. And thanks to the upcoming Euro 6 emissions standards, that number should fall, as diesel NOx emissions are required to be aligned with those of gasoline engines.

While the government may be genuinely concerned about the health of its citizens, it’s hard not to see this as another cynical political calculation, similar to the now shelved plans for extremely high tax rates on France’s top earners. A hallmark of ineffective government is the use of dramatic, headline grabbing solutions, which are little more than PR stunts and rarely mistaken for solid governance. Despite the posturing of France’s current administration. A La Tribune columnist noted that the Environment minister herself admitted that diesel engines from a decade prior are the real problem, since they can emit as much as 30 times more pollution than the current crop of diesels.

To add to the matter, both PSA and Renault are in a precarious position. TTAC readers will know that the French government has been marshaled to help provide de facto bailouts to PSA and quell the ongoing labor disputes between the French auto makers and the myriad of unions entrenched in their factories. With Europe’s new car market already hanging by a thread, the diesel tax comes at a particularly bad time for France’s domestic auto industry.

Is Hyundai eyeing PSA’s compressed-air hybrid system? If you believe the scuttlebutt out of France, the answer is yes.

While PSA is heavily touting this new technology as a possible CO2 emissions savior, their technical partner Bosch has been much more cautious. Bosch cautioned that “…Unspecified technical challenges have yet to be overcome before a commercial launch…“, a statement which is at odds with PSA’s ambitious 2016 launch schedule for this technology.

One theory being floated by industry experts (off the record of course) is that this technology is akin to the Volt – a “green vehicle” enticement that PSA can use in the event that it needs to raise bailout funds. At the very least, it is a symbol of what PSA can be capable of.

Hyundai has bucked the trend of fully embracing EVs, with hydrogen being a central focus of its zero-emissions strategy. Even its hybrid lineup is relatively sparse. The compressed-air technology and any notion of technology sharing in itself would be out of character for the Hyundai of Toyota (as opposed to another era, when the cars were Fords and Mitsubishis), but stranger things have happened.

Prevailing wisdom today holds that small cars, manufactured in developed economies are some of the least profitable cars in existence. So why do companies like Peugeot, Citroen and Renault persist in producing them?

In article in La Tribune (France’s leading business paper) explains why. Once upon a time, when Giscard d’Estaing ruled and the Fifth Republic was just being digested after a spicy summer of 1968, France decided to tax big cars, in the name of Liberté, égalité, fraternité. Since the biggest market for French cars was France, Renault, Citroen and Peugeot decided to switch to producing small cars – the Citroen SM was a footnote, rather than a mainstay of France’s auto industry, despite what the buff books tell us.

Up until recently, things were tries bien. Renault, for example, sold nearly half a millio Clio and Twingo models in 2012 alone. Not bad for a company that mostly plays in Europe, but these cars are also not so profitable. Renault is able to produce these cars in Turkey and Slovenia respectively (with some Clio production still kept in France) which takes away some of the sting.

Over at PSA, things are much more dire. Small cars (B and C segment, for clarification’s sake) make up about 45 percent of their sales, but a good chunk of them are built in France. Workers there earn 35 euros an hour, compared to 22 in Spain and just 10 per hour in Slovakia. PSA’s CEO told La Tribune that a new Peugeot 208 built in Slovakia would save an astonishing 700 euros per car, along with the contentious labor negotiations that go hand in hand with French organized labor. At Renault, the cost difference is even more staggering, with 1300 euros saved on the Clio when it’s built in Turkey. Any surprise that since 2005, both companies have cut their domestic production in half? The strong social safety net and egalitarian society designed to protect the workers has ultimately resulted in a contribution to their declining fortunes.

Ironically, the small car segment, for all the talk about shrinking profits, is growing in France. Registrations have continuously increased since 2007, from 45 percent of all cars to 53 percent in 2012. But the only way for car companies to make any money is to wither away domestic production in favor of the Dacia approach; old technology, no frills packaging and ultra-low cost production in developing economies. So far, only Renault has this capability. PSA is trying it’s hand at the Fiat and Mini approach, positioning Peugeot and the Citroen DS line as “premium” small cars, in the hopes of squeezing some more margin from their products. Given the increasing stratification in the European car market (where only the high and low ends can make any money) it is a risky approach. But not everyone wants to drive a Dacia, and not everyone can afford a Benz.

What would you say to a hybrid B-segment car that weighed 1700 lbs, emitted half the carbon emissions of a Toyota Prius and still hit 62 mph in 8 seconds?

In a couple weeks time, Peugeot will debut a new version of their 208 subcompact, dubbed the HybridFE. The starting point is a base 208 with a lethargic 1.0L 3-cylinder engine making 68 horsepower. With a 14 second 0-60 time, one could read an entire Foucault book on the construct of the sociosexual panopticon and still just hit 58 mph.

But Peugeot, channeling Chapman, has ripped out 440 lbs from the car, bringing its curb weight down to about 1700 lbs, from the base car’s 2150 lbs. A hybrid system, an automated manual gearbox, low-rolling resistance tires and a special aerodynamics package have been added to help increase efficiency and aerodynamic properties.

The end result is still a 68 horsepower 208, but one capable of a very respectable 8-second sprint to 62 mph, while emitting just 49g/km of CO2 – about half of what a Toyota Prius emits. For comparison, vehicles than emit less than 100 grams are eligible for exemption from the London congestion charge, since they are considered low emissions.

The one caveat here is that Peugeot hasn’t released any pictures so far. Nevertheless, it’s nice to see that light weight engineering is far from dead. It’s certainly more realistic than their compressed-air hybrid system.

Despite a plan for a financial turnaround by 2015, PSA projected a cash burn rate as much as 1.5 billion euros  for 2013. Meanwhile, PSA’s finance arm had their bonds downgraded to junk status.

The downgrading of Banque PSA’s bonds by Standard & Poor’s is yet another blow for the French automaker, which reported record losses this week. One positive development for PSA was a labor agreement with workers at the troubled Aulnay plant, which allowed PSA to start winding down production ahead of schedule.

Meanwhile, French paper La Tribune shed some more light on PSA’s new brand strategy going forward. Initial reports suggested that Peugeot would move upscale, with Citroen remaining in its current place, but La Tribune now claims that

Citroën and should move at least partially to models simpler, more affordable, while its DS range must occupy the high ground. Peugeot remains in place somewhere between the two

We’ll have the story straight as soon as possible. But as Jimmy Buffet famously said, it’s 5 o’clock somewhere, and in France, the work day is definitely over right now.

Stop us if you’ve heard this one before. Unlike the poorly interpreted plans for Mazda to be a “premium” brand, PSA really is planning to take Peugeot upscale, despite having zero brand equity, an upscale Citroen line and zero exposure to the profit center of the future, low-cost cars.

The announcement came as PSA announced a record $6.7 billion loss for 2012, compared with a $588 million profit in 2011. PSA also laid out its plans for a recovery, including the baffling upscale move for the quality-plagued Peugeot brand.

Automotive News reported on the developments, quoting PSA CEO Philippe Varin

“The Peugeot brand will move toward a more modern image,” led by the 208 subcompact’s high-performance GTI version and the new 2008 SUV-styled crossover, Varin said. “In 2013, the positioning of our brands will be supported by a very rich range of products and 17 vehicle launches,” he said.

Despite being fetishized by North American euro-philes, Peugeot is on the cusp of irrelevancy in the European car market. While they have had some success with their B and C-segment offerings, the market for D-segment and above sedans has been moribund since Mitterand was in the Élysée Palace, serving mostly as minicabs in third-rate British towns and transportation for the bad guys in Ronin. The notion of Peugeot as a premium brand is laughable, and complicated even further by their intra-group rival Citroen.

At the turn of the decade, Citroen launched their DS line of premium hatchbacks, models which won critical acclaim but have still yet to set the sales charts on fire (the DS5, above, is the ride of choice for France’s Prime Minister). That will leave PSA with two brands which are aspiring to play in the premium segment, but without any sort of strategy for a low-cost brand to be sold both in Europe and developing markets – a strategy that has helped Renault-Nissan reap fat margins even in the current lean times. Unbelievably  this strategy is a central tenet of PSA’s recovery plan, which was demanded in exchange for government help for its financing unit.

Among the other stipulations include targeting for 50 percent of its vehicles to be sold outside Europe by 2015 (a tough one, in light of having no low-cost product to sell in developing markets), doubling production volumes via its alliance with GM, and achieving a 13 percent market share in a market that PSA assumes will hold at 2012 levels of car sales. In the words of one Credit Suisse analyst ”Both look unlikely now”. Given that the writing is on the wall for a continued decline in European new car sales it’s impossible to fathom how PSA could present these plans with a straight face.

But for a company like PSA, 2015 is a long way away. Let’s see if they make it through 2013 without becoming partially state owned, and then take it from there.

After approving a $1.6 billion loan guarantee for PSA’s captive finance arm, the European Commission demanded a restructuring plan for all of PSA within six months.

Reuters quotes an EU spokesman as telling the French government

“We expect France to notify to us of a restructuring plan, not just for the banking arm but for the whole PSA group, because this aid also benefits the whole group,”

Government aid for Banque PSA was first proposed back in October, as it became difficult for the finance unit to borrow money due to the overall weakness of PSA itself. A bailout of Banque PSA was also seen as more palatable than providing aid to the car making unit.

Details of any potential restructuring are unclear, but the EU wants to make sure that PSA’s business will remain viable without any further state aid. Either way, PSA will be under the gun even further, as attempts to cut jobs have already raised the ire of France’s powerful labor unions and the current left-wing government.

Lacking the same profit sources as its French rival Renault (like low cost cars and exposure to healthy markets), PSA has been in the toilet financially, bleeding as much as 200 million euros per month. Even the new 208, France’s best-selling car last month, hasn’t been enough to help stem the tide.

It’s safe to say that 2012 was PSA’s annus horriblus. From job cuts to a shaky alliance with GM to bond rating downgrades, everything that could have gone wrong for Peugeot-Citroen ended up happening. And 2013 may not be much better, as the prospect of a bailout looks ever more like reality.

PSA is still faced with the structural problems that dog pretty much every car maker in Europe; a weak economy, rampant overcapacity and a demographic deck stacked against growth in the new car market. Unlike chief rival Renault, PSA has failed to expand its horizons beyond Europe, with little in the way of low cost offerings for emerging markets. On top of that, attempts by PSA at exercising financial prudence, like cutting jobs and closing factories, have been met with outrage in France. A proposed alliance with General Motors has produced little in the way of any tangible results.

The most recent news concerning PSA stems from comments made by French Prime Minister Jean-Marc Ayrault, who denied that there would be a PSA bailout, but admitted that there was a plan in place should the need arise. Technically, there already has been a bailout; back in October, the French government helped arrange a re-financing deal for Banque PSA, the company’s captive lending arm. Since bailing out PSA itself would have been a political nightmare both at home and among the wider EU, a helping hand for Banque PSA was seen as an expedient way to aid PSA.

PSA seemingly kicked off 2013 with a product offensive; an all-new modular platform is said to underpin PSA’s C and D-segment cars, which account for most of their sales, and a new hybrid platform using compressed air promises the usual world-saving spiel that makes dilettante green car fans and government officials go gaga. But these new product plans raised far more questions than they actually solved.

For starters, the new product plans were peculiar in light of the supposed platform sharing and other synergies that GM and PSA touted as benefits of their allance. But that union appears to be as good as dead. While PSA was hoping to leverage GM’s experience in emerging markets like China, GM was apparently looking to use PSA as a dumping ground for its troubled Opel division.

The original GM-PSA platform sharing plans called for a broad range of tie-ups with city cars and compact MPVs, as well as Opel producing PSA’s D-Segment car. Now, PSA will apparently go it alone with a new modular platform called EMP2, which covers the C and D segments, which covers the mid-size and large car, MPV and crossover segments that comprise most of PSA’s range. A modular platform makes sense for Peugeot financially, but it requires a great deal of capital that PSA doesn’t necessarily have.

Even more pie-in-the-sky is the compressed-air-hybrid project. As outlandish as it may be, there appear to be a number of stumbling blocks that make the whole deal look like little more than vaporware. Bosch, PSA’s partner in the compressed air hybrid scheme, noted that “…Unspecified technical challenges have yet to be overcome before a commercial launch…“, despite PSA’s insistence of a 2016 launch date – a relative blip in time in the auto industry.

The answer appears to be lie in the use of these products as a PR pitch for a forthcoming bailout. Industry observers will recall that GM trotted out vehicles like the Volt and the Malibu as justification for its own bailout. In addition, the compressed air hybrid is far less of a moonshot right now than the Volt was in 2008, and PSA’s partnership with Bosch lends the program a certain gravitas. But as it stands, PSA can’t even gain traction with popular products like the 208 B-Segment hatchback – how can they be expected to introduce this kind of technology on such a short timeline?

However, if PSA were to go hat in hand to the French government, they could point to EMP2 and the new compressed air system as evidence that they are well positioned to be competitive in the future. Hybrid sales are up more than 50 percent in Europe, and green issues are still en vogue with a majority of consumers. French President Francois Hollande employs a hybrid Citroen as his official State Car, and the new compressed air hybrid is an important exercise in government relations if PSA is going to get any state assistance. Meanwhile, the first EMP2 product is the Citroen Picasso (above), one of PSA’s few bright spots, and a consistently strong seller in the European MPV segment. Similar to how the Malibu and the Volt represented the here and now and the future for GM, these two will be the emblems of PSA’s immediate recovery and its climb back to relevance in the future. Prototypes of the Picasso have been seen out and about near PSA’s Spanish assembly plants, but the compressed air hybrid isn’t nearly as far along. Rest assured, if it does make it to production, it won’t suffer from anywhere near the same vitriol as the Volt did.

The French government is denying that it plans to acquire a stake in PSA, but France’s Prime Minister told reporters that mechanisms for providing government assistance have already been vetted.

At a time of high unemployment and factory closures across France, the fate of PSA is a sensitive one. PSA’s sales have been tanking, hampered by an uncompetitive product line, falling car sales in Europe and a lack of low-cost product to compete in emerging markets.

Peugeot has already cut 8,00 jobs in the country as part of its plan to break even by 2014. But the company’s losses, estimated at 200 million euros a month. Amid an announcement of a $5.53 billion writedown, French politicians began going on the offensive regarding PSA, with the country’s budget minister declaring that ”Let’s be clear: this company cannot, must not disappear”.

French PM Jean-Marc Ayrault told Reuters that a more detailed plan had already been drawn up, while simultaneously denying that any action would be taken at this point

“We do have a tool, the FSI (France’s sovereign-wealth fund), which can if necessary take a stake. But today this question is not being looked at,”

Ironically, Peugeot, unlike its rival Renault, is entirely owned by private actors, while the French government owns a 15 percent stake in Renault. But that could change quickly given the way things are progressing.

If GM wants to know what will happen when things get tough at its Opel plants, all it has to do is ask partner PSA. Workers at PSA’s doomed Aulnay plant  “face jeers and threats, as well as eggs and other objects hurled by striking colleagues protesting against the shutdown and Peugeot’s restructuring plans,” as Reuters reports from the frontlines.

The two-week-old standoff between union pickets and the workers they brand as scabs “may only be a foretaste of more clashes to come as unions steeped in a culture of conflict fight restructuring plans,”  the wire service writes.

Out of a total 3,000 workers, management says only 260 are striking, while the CGT union says it is up to 500. Several hundred more simply call in sick.

GM’s CEO Dan Akerson gave an interview to Norihiko Shirouzu, one of the best men in Reuters’ impressive stable of automotive writers. Akerson disclosed two very scary pieces of information:

1. GM hinged most of its emerging markets strategy on its Chinese JV partner SAIC
2. GM will hinge most of its emerging markets strategy on SAIC and PSA

In a world of stagnating first world markets, emerging markets are the placer to be for growth and volume. Already, more cars are sold and bought in emerging markets than in the U.S., Canada, Japan, and Western Europe. A well-managed car company must have a solid emerging markets strategy, or it will die.

Apparently, GM wanted someone to hold its hands when venturing into these strange lands. Says Reuters:

“Top executives of the global automaker had begun indicating about three years ago that it would use SAIC, which produces affordable no-frills cars in joint ventures with GM, as its preferred partner to expand into emerging markets worldwide.”

Scary. Not only does GM want to share the pie in China, where it has to. It also wants to share in other markets, where is does not need to. Shared growth is only half the growth. And if the growth comes from SAIC’s “affordable no-frill cars,” then the money will end up at SAIC. What’s even scarier: GM helps  China’s largest automaker establish itself  in the most interesting world markets.

Can it get any scarier? Yes, it does. Says Reuters:

“But in recent months, GM has been looking to also partner with France’s PSA Peugeot Citroen, not only in Europe where the U.S. auto maker is trying to fix its troubled Opel unit but also in Russia and Latin America.”

Already, the GM-SAIC joint venture is selling Chevy Sail compacts to South American, along with Chinese-made Wuling microvans, nearly always using GM’s dealer networks. Now it wants to share its future with French patient PSA.

According to Reuters, Akerson “is now trying to divide the emerging world between its two partners. SAIC in Asian markets outside China and PSA in Russia and Latin America.”

Imagine: You walk through dark alleys in foreign lands. You are accompanied by one guy what wants you dead, sooner or later, and another guy who will be dead, sooner or later. Very, very scary.  GM does not new partners. It needs a new boss.

PSA makes the Peugeot 207 and Citroen C3 Picasso models in Trnava, a plant that made 215,000 units in 2012.  The plant has capacity for 300,000 cars.  PSA’s European sales ended down 12.9 percent in 2012.

Less than a day after PSA announced their new EMP2 modular platform for C and D Segment cars, TTAC was already questioning the health of the seemingly moribund GM-PSA alliance for medium and large-size cars. Now, we have an answer – Opel will be adopting EMP2.

Under the deal, the Opel Zafira and Peugeot 3008 MPVs will be built on the EMP2 platform, while smaller MPVs like the Peugeot 2008 and Citroen C3 Picasso (which are B-segment cars and thus not covered by EMP2) will be engineered by GM at Opel’s facility in Ruesselsheim, along with the standard B-Segment cars, using an older PSA  B-segment platform.

Notably absent was any mention of any larger C or D segment cars, as originally announced in the summer. Opel’s Steve Girsky told Reuters that, with respect to the Zafira, ”we didn’t have enough volume to justify doing it on our own”. Ostensibly, PSA didn’t have the volume for the Citroen C5 or Peugeot 508 to do a D-segment car on their own either. The big question is, what happened to these plans? Opel’s own Insignia at least has some export potential to help add volume, but the missing large sedan is a big question mark in a plan put forth by two auto makers with dim prospects.

We at TTAC are very excited by modular platforms, and it has nothing to do with undiagnosed autism spectrum disorders or a lack of interest in the wider world outside autos. Modular platforms are the next great leap forward for auto makers; green cars help save cute animals, and thus get all the attention, but guess what underpins the Nissan Leaf? A version of Renault-Nissan’s B Platform, which underpins everything from the Cube to the Clio to the Sandero.

The driving force behind modular platforms is scale. Auto makers are competing in a global marketplace selling an extremely complex commodity product with high R&D costs and low profit margins. Modular platforms help by creating a standard platform and component kit across a number of model lines, making the car less complex to manufacture and allowing for the platform itself to be amortized across a number of model lines.

One could argue that BMW was one of the pioneers of modular platforms, building the 3, 5 and 7-Series in the familiar “one sausage, many lengths” format that we all know and love (or loathe, depending on how much you emotionally invest yourself in the brand). Recently, Volkswagen has taken modularity to  another level with their MQB platform. Different components can be added or removed depending on the vehicle’s footprint or engine size, but the distance between the front axle and the pedal box remains fixed. This allows VW an unprecedented amount of flexibility to build pretty much every transverse, front-wheel drive vehicle off of one platform, at any of its global factories that is configured to built MQB-based cars. The advantages as far as scale goes are unprecedented.

PSA, the struggling French automaker behind Peugeot and Citroen, has just released their own version of a modular platform, dubbed EMP2, as a means of capitalizing on that trend. From a product standpoint,  EMP2 will cover the C and D segment cars in the PSA range, which are fairly large for Europe, but account for about half of PSA’s sales.Crucially, EMP2 will not be applicable to B segment cars, while VW’s MQB platform will, a major oversight given that PSA relies on markets like Europe, Africa and South America, where B segment cars are most important.

Instead, EMP2 will be the building blocks for vehicles like the Citroen C5 mid-size sedan, the DS4 and DS5 premium hatchbacks and the Peugeot 308 and 508, which compete in the C and D segment respectively. EMP2 will also be used to build station wagons, SUVs (which PSA currently sources from other OEMs) MPV-type vehicles (minivan type cars that are smaller than North American minivans, a popular segment in Europe that PSA has traditionally been an innovation leader) such as the next generation Citroen C4 Picasso and the all-important light commercial vehicle segment.

PSA is touting weight savings of 154 lbs versus outgoing models, with a 22 percent reduction in CO2 emissions thanks to technologies like start-stop systems, electric power steering, lightweight construction materials and low rolling resistance tires. Other advanced features like electronic parking brakes, active aerodynamics and radar-guided cruise control were also touted in a short video released by PSA.

From a manufacturing standpoint, PSA appears to have emulated a number of VW’s innovations with EMP2, while making some interesting advancements. Much like MQB, EMP2 relies on a series of “plug and play” modules, with some interesting differentiations. For example, EMP2 offers two rear suspension options; a beam axle or a multilink independent system can be optioned, depending on whether PSA wants to keep costs down or to provide a superior driving experience. A high or low driving position and a short or long rear section can be substituted, allowing for an easy transition between a passenger car or something like an MPV or commercial vehicle that requires more cargo room and a higher seating position.

Where EMP2 appears to fall flat is in the front section – while MQB offers an exceptional degree of customization up front (with only the one fixed point) it appears that PSA has kept the front section fixed, with various powertrains able to be installed. Given the size and profitability delta between PSA and VW, it’s understandable that PSA would opt for a simpler, less expensive solution, though the importance of scale and flexibility suggests that VW will continue to have the upper hand with MQB. It’s likely that the fixed front section is one of the key stumbling blocks preventing EMP2 from being used as a B-segment platform, since the single fixed point of MQB allows for different wheelbases as well, something EMP2 is not capable of.

From a manufacturing standpoint, PSA has also given up much of the flexibility that Volkswagen enjoys with MQB, in exchange for what is ostensibly a cheaper and less complex architecture. PSA simply does not have the R&D budget and global scale to embark on something as ambitious as MQB, and therefore must make tradeoffs in certain areas. On the other hand, PSA doesn’t require such an overarching modular architecture like VW does, and can tailor its factories to produce popular models that align closely with local tastes (such as high-end crossovers and larger sedans in China, MPVs and C-Segment cars in Europe), whereas Volkswagen must manage multiple brands and product lines across a greater number of markets.

The first EMP2 products will be the Citroen Picasso MPV and the new C-segment Peugeot 308 – which will compete against the MQB-based Golf, as well as its Skoda and SEAT siblings. Worth noting is that both VW and PSA are debuting these products at a time when the mainstream car market is eroding in Europe. The real threat may come from the low-cost entries, specifically Renault’s Dacia line, which offers B and C segment sedans and hatchbacks, as well as compact SUVs and MPVs, at cut-rate prices, with little appreciable difference in quality. While high-content features like start-stop and radar-guided cruise control may be absent, the basic features that many motorists require, like air-conditioning and central locking are still available. And given Europe’s precarious economic state, the price – frequently under 10,000 euro – is right. Meanwhile, Renault, taking advantage of their own modular platform system, is making as much as 9 percent profit on the cars, margins that PSA can only dream of.

Also worth noting is how EMP2 would integrate with any potential GM tie-up. This past summer, plans for a joint Opel/PSA tie-up in the D segment space were discussed, with Opel tapped to build the successor to Citroen’s D-segment entry, the C5. Half a year later, Peugeot is debuting a vision that runs counter to the Opel plan, one which would provide significant cost-savings for both auto makers, despite the seemingly moribund alliance. Clarification from both parties will be required to get a picture of PSA’s future product plans, as well as the strength of the GM-PSA alliance. In addition, this may be a signal regarding PSA’s own lack of faith in Opel, which is in the throes of a near-meltdown financially.

The French government is asking the EU Commission to approve its bail-out of GM’s alliance partner PSA Peugeot Citroen, Reuters says with input from French daily Les Echos.

The rescue operation initially was called help for PSA’s bank, which would not require state aid approval from Brussels. Brussels did not buy the reasoning, called the 7-billion-euro ($9.2 billion) state loan guarantee restructuring aid and told the French government to ask for permission.

The process is expected to take about two months. What usually happens at the end of the process is that aid will be un-tied from obligations to keep jobs and suppliers in the country.  Reuters also thinks that “a state aid probe by Brussels could ultimately increase the cost to Peugeot of the state loan guarantee and the 11.5 billion-euro refinancing deal to be finalized with creditors next month.”

What a sexy bride! A year ago, GM acquired seven percent in moribund PSA. A year later, PSA announces truly horrific results. PSA’s global car sales dropped 16.5 percent for the year. Its market share in Europe is down 0.5 points to 12.7 percent. There is a big black hole where there used to be a profitable Iran business.

The European car market is at its lowest in close to two decades and Peugeot’s sales performance in the region in 2012 was the worst in at least the same period, Reuters says. PSA thinks that the EU market might drop another 3-5 percent this year.

“If this view of the world should turn out correct, we see little reason why the financial situation at PSA should improve at all during the year,” Credit Suisse analyst told Reuters.

The mesalliance with GM brought PSA more trouble than benefits: After the linkup with GM was announced, PSA found itself in the cross-hairs of an influential US anti-Iran lobby group which pressured GM to make Peugeot shut down Peugeot’s Iran business due to Tehran’s suspect nuclear program. PSA abandoned Iran faster than intended, at the cost of 313,000 CKD kits and untold amounts of parts no longer shipped to Iran. More

The French government is pushing PSA Peugeot Citroen to buy Opel, says Le Monde, which claims to have its information from sources at the French Finance Ministry and in the entourage of France’s  President Francois Hollande. Buying moribund Opel would  allow PSA to stand up to “ogre Volkswagen”  which  “has chosen to eliminate PSA,” as an informant told the Paris paper.

Months ago, combining the hypertoxic assets of Opel and PSA was feted by Luca Ciferri of Automotive News as “a catalyst for reform of Europe’s auto industry.” That auto industry must be in an awful lot of trouble to be rescued by a malaise-merger of the equally sick.

Even a combined PSA/Opel would not reach the European sales of ogre Volkswagen. Internationally, and there’s the real rub, the duo would fall atrociously short of Volkswagen’s international machine. But that would manifest itself many years after the transaction has been completed.

Meanwhile, Le Monde wonders where PSA should get the money to buy Opel.  The paper fingers the French government as the investor.  It overlooks that no immediate cash would be needed.  Morgan Stanley figured a year ago that Opel is worth “minus $7.6 billion,” and that GM would have to spend between $5 and 6 billion to get rid of the problem.

An Opel spokesman in Rüsselsheim called the report  ”pure speculation”.

We did not believe that EU regulators would let France’s government bailout of GM’s alliance partner PSA skate through unchallenged. State aid to companies is against EU rules, and refinancing of Banque PSA Finance is state aid EU Competition Commissioner Joaquin Almunia wrote in a letter to the French government. This according to a report in the French daily Les Echos.

The clever French thought that by propping up PSA’s bank instead of PSA directly, the aid would be legal. EU governments may help banks, but not other companies. The EU competition commissioner does not quite buy this argument.

The EU stumbled over the hard to miss fact that the aid comes with strong strings attached: Reduced job cuts, French plants stay open, government and worker representatives get a seat on the board of PSA. A bank does not commit to car plants remaining in the country.

“The EU objections follow a formal complaint received by Brussels from an unidentified Peugeot competitor,” says Reuters.  The German state of Lower Saxony said it would report the deal to Brussels as a possible breach of EU rules. Lower Saxony is a shareholder of Volkswagen, which is headquartered in the state.

France is a repeat offender. In 2010, Almunia objected to a government loan to Renault, There was a clause in the agreement that required that within two years, Renault has to buy 70 percent of the parts from French suppliers. In 2009, the French government tried to link loans for PSA and Renault with keeping jobs in France. Brussels showed the yellow card, and Nicolas Sarkozy watered the clause down to a “moral obligation.”

However, using Brussels as the bogeyman is part of the Europe political theater. Act 1: Government comes to the rescue to save jobs. Act 2: Brussels objects. Act 3: Government says: “We tried.” Act 4: Government saves face and money.

PSA started production of the three cylinder “EB” engine in December 2011. The mills did not surprise with power.  The EB0, a one liter engine, produced 62 hp. A slightly larger 1.2 liter variant, the EB2, made 82 horsepower. Thank CAFE when some of these engines make their way stateside.