By on February 22, 2012

GM and PSA Peugeot Citroen have a mutual problem: Losses in Europe. Now, the two want to share the burden. General Motors and PSA are discussing a broad manufacturing alliance, if today’s media reports from Europe are to be believed.

PSA and GM?

Number 2 in Europe PSA had been looking for  a partner for years. The logical ally used to be Fiat. At the Detroit Motor Show, Fiat CEO Sergio Marchionne told Reuters that

“he would be willing, in principle, to be part of a consolidation that would create another car company in Europe rivaling Volkswagen AG in size.

“If you take two of the European players and put them together, you’re going to get the right answer,” Marchionne said.”

Using that math, the options are limited. Even if you add the largest European players, none of them would eclipse the European juggernaut VW. Fiat’s and PSA’s EU market shares, added together, would be 19.6 percent, not enough to out-do Volkswagen’s 23.9 percent share.

There is just one combination that comes a bit closer to the target, and that is PSA and GM. Their combined share would be 19.9 percent. Neither GM nor PSA are thinking of merging though.

The talks are about sharing vehicles and parts, and not about a capital tie-up, Reuters says.

In the meantime, analysts in Europe are scratching their heads and ask: Why?

Peugeot and GM’s Opel suffer from overcapacity in Europe, while facing painful restructuring and militant unions. Both agonize under too much exposure to a stagnant EU market. Which makes Credit Suisse analyst Erich Hauser wonder:

“We struggle to see how yet another ‘me-too’ cooperation with GM Europe on componentry will help address any of the fundamental issues.”


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15 Comments on “The Odd Couple: PSA And GM In Alliance Talks...”

  • avatar
    Cammy Corrigan

    Firstly, Herr Schmitt, You are an utter, utter git! I remember when I first received that couple’s wedding photos as a viral email years ago and I remember wetting myself laughing then. Now to see it again representing GM and PSA, just makes the whole thing funnier. Though, it does beg the question, which one is GM and which one is PSA?

    Back to topic, overcapacity has been the problem in Europe for many years. I’m surprised that the excess capacity has lasted this long. If Europe is honest with itself, we NEED another recession and then, we let the recession play itself out. It may kill off some of the smaller players (i.e the Japanese) or take a big fish down (GM Europe or Fiat), but the capacity issue would get solved.

    This is also analogous to many other things across Europe. Maybe a new recession, will kill Greece (and the Euro?) once and for all, instead of seeing money being thrown trying to prop up something which should have fallen.

    If I’m honest, I’m looking forward to the massacre. There are too many jobs which shouldn’t be around i.e being propped up by government largesse or a very generous parent company) and the sooner these are addressed, the better…

    • 0 avatar

      Joseph Schumpeter, is that you? Rap on the table three times, then post a comment on TTAC if the spirit we feel is yours.

      All joking aside, as painful as what you are suggesting would be for many people, you are probably right. I have a Kodak retiree and a Kodak employee in my immediate family, so I can tell you for certain that the death of old industrial champions is no fun. But the city of Rochester, NY, a former company town that is now reinventing itself, is also proving that there are rewards that come from letting something that is past its prime shrink or disappear; people move on to more productive uses of their talents, time, and capital. Ther

  • avatar

    . . .Wow. I understand the fundamental issues coming from two drunks trying to hold each other up (GM and PSA in this case) but did the Cammy just seriously pull a Hoover? For the record no economist worth their salt (read: non-Austrians) ever thought losing capacity and shutting down major factories is a good idea. The problem for Europe is the move away from cars as population increases and VW is the GM equivalent there, they sell somewhere around 8 different brands in Europe not all available in the same country but usually at least 2-3 are available and are differentiated enough so as not to cannibalize each other wholly.

    This relationship sounds like a standard sub-corporate merger where they create a 3rd entity and produce a series of vehicles through it using their know-how.

    That being said, overcapacity may be an issue in the short and medium-term but eventually things will rebound and those with capacity will be there for a windfall.

  • avatar
    doctor olds

    The problem in Europe is that the currency union is unravelling and taking the economy down with it. The PIIGS problems are not fixed yet.
    GM-PSA combined represent a global scale over double the size of Ford or Hyundai-Kia and 60% bigger than second place VW.

    I don’t know anything about PSA products: their attributes or quality. A number of them did catch my eye as good looking when I was travelling overseas.

  • avatar

    I think there’s a lot more to this story than meets the eye, and it isn’t really about PSA at all…

  • avatar

    If capital is tied up in supporting overcapacity, it is not being deployed toward things like new product development, so when the market rebounds, they may end up with production capacity but nobody interested in buying their undeveloped cars.

    • 0 avatar
      doctor olds

      General Motors made that mistake in the early 90s, deferring PD, as one of the few levers that could be pulled to control spending. As they say, the rest is history. Instead of leading, GM lagged, making their products less competitive, at the same time a massive re-organization sliced and diced the old businesses, further deteriorating performance. They had the same problem the Europeans face, powerful unions and political forces that will resist the necessary capacity and labor reductions.

      • 0 avatar

        Fiat is making this mistake in Europe as we speak, it’s had a model drought for several years now, only occasionally launching a new product (Alfa Romeo Giulietta, Lancia Ypsilon, Fiat Panda). In that sense, Fiat is contributing to solving the overcapacity problem in Europe… by ceding its own market share to competitors. Only problem is that Fiat’s *own* overcapacity problem increases as a result…

      • 0 avatar

        @ Lampredi

        Fully agreed. I’ve long wondered what prompted the auto-universe to promote SuperSergio to demigod status. He hasn’t been able to keep Fiat from a slow downward spiral over the last five years, same as most other automakers.

  • avatar

    Nobody thinks Opel isn’t being discussed? Imagine what what Citroen designers could do with those solid German underpinnings.

  • avatar

    I think they could make a business case for building the DS-3 over there, then shipping it over here with a quick brand-swap as a Buick.

  • avatar

    Well I think the goals of this alliance are :
    for GM,
    -Main Goal: Enter in the European Commercial Vehicles Market (PSA has 25-28 % EU Market share) and sell Technology (Especially Engins to PSA Commercial Vehicles Branch).
    -Others goals: Conquer the European Car Passenger Market with an important ally (Opel has no succes)
    -Rivalize with VW and FIAT in Europe…
    -Have common projects in China, where PSA is trying to enter.

    for PSA, C
    -Replace Chrysler engin supply partnership for Commercial Vehicles (Ending in 2017 and announced by FIAT when the fusion with Chrysler take place)
    -Enter again in the Indian market, participate in the US market in the long term and eventually, enter in the Chinese Market with GM cooperation…
    -Reduce CV cost by cooperation.

    And finally and less important, say to FIAT-Chrysler, thanks we have a new partner, LOL!

    Seriously, this alliance is not a Passenger Car issue, is a Commercial Vehicles issue, sector where PSA
    is strong in Europe, you analysis is quite biased, because PC will not be really concerned.

    Here the statistics….

    and an article (in French) where Peugeot PSA CEO talks about looking for a partner for utility vehicles and other CV that are expensive to produce and develop alone…

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